Everyone loves a winner – especially when it comes to our portfolios. It feels great to log on to our brokerage accounts or 401(k)s and see some hefty returns and positions that have appreciated nicely. But your brain may be playing an awful trick on you.
There’s is a real downside to seeing those returns. Namely, increased risk and the chance for underperformance over the longer haul.
Which is why we rebalance our portfolios.
Or at least we are supposed to. Yet most of never lift a finger to do so until it’s too late. While the activity of selling our winners and adding to our losers is pretty mundane, it’s a necessary step to combat risk. It’s time to find some balance, or rebalance, that is.
Since the end of the Great Recession, the markets have basically been on a straight climb upwards. For whatever reason – low-interest rates or better economic prospects – investors have returned to stocks in a big way over the last couple of years. And after bottoming out at 675 back in March of 2009, the S&P 500 is now sitting pretty darn close to 2,200. That’s a gain of nearly 225%.