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Don’t Let These Factors Devastate Your Portfolio
Posted By Ron On September 13, 2011 @ 1:04 AM In Investing | Comments Disabled
Once you’ve built an investment portfolio that matches your investment goals  and risk tolerance , it’s critical to keep your momentum and maintain it based on those goals. As with most everything, there will be aspects of your investment portfolio that will thrive while others will stagnate. As a result, you’ll need to adjust your asset allocation accordingly.
Adjusting your portfolio is called re-balancing. The purpose of rebalancing is to ensure that your portfolio is positioned to minimize risk and maximize returns as changes occur in the market, in the general economy , or in the individual investment products you own. But beware! Rebalancing is an activity best done annually (at the most). Compulsively rebalancing your portfolio weekly or monthly isn’t productive and will only waste money in brokerage commissions and other transaction costs. Save rebalancing your portfolio for your birthday unless you experience a life event such as
Your financial goals  change – as we age, financial advisors generally recommend that investors adjust their risk tolerance to favor income over growth.
The economy  shifts – as the economy  moves between expansion (growth) and recession (contraction or no growth), the market inevitably follows. You may wish to re-balance your portfolio to reduce your risk if you feel a major market shift is in the works. Just make sure you know what you’re doing. Too often, emotions dictate these types of decisions.
Investments in your portfolio experience significant price changes – if an investment you own increases in price by a significant amount, it will naturally become a larger portion of your portfolio than it did before. You may consider selling at least a portion of it and moving into other investments, both to take some of your profits and to remain well diversified.
As you manage and re-balance your portfolio, be diligent to stick with your investment plan. Perhaps the greatest risk most investors face is their own vulnerability to two very powerful forces: greed  and fear.
Greed  leads investors to chase market trends and ignore the need to do research an investment’s fundamentals.
Fear causes investors to lose sight of their objectives in the short term and sell stocks they really shouldn’t sell. The stock market generally overreacts to any negative news about a company (real or imagined), and panicked investors ignore their goals and sell the investment. A massive sell-off causes the investment to decrease in price and that makes even more investors sell it! But if an investment’s fundamentals haven’t changed, don’t sell it.
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