Rebalancing is a pretty simply concept, one that SMO Fitzgerald Global sees far too many investors ignore. You have a set allocation of assets and over time these assets are going to perform differently. Rebalancing is the bringing of the asset classes back into alignment according to the predefined allocation.
An allocation of 70/20/10 of stocks, bonds and cash, may well morph into a 74/19/7 mix over the course of a year, rebalancing is the bringing of this mix back to the 70/20/10 levels. But why do this?
One of the main reasons is because SMO Fitzgerald Global views an investment plan, and the asset allocation within, as the right mix of risk and reward that is most suitable for achieving the investor goals. One of the great advantages is that it forces investors to sell high and buy low as if one asset class is outperforming another then this is exactly what rebalancing will mean.
Historically, SMO Fitzgerald Global has identified a trend among broad asset classes that tend to revert to the norm, meaning that the best investments over the last few years will tend to underperform for the coming years, and vice versa (this is not always the case however). Rebalancing means that you sell off a portion of these over performing assets before they enter their downward turn and buy underperforming ones just as they are warming up.