Rebalance to manage investmentsSubmitted by Agrawal Associates on June 21st, 2017
June 27, 2017
If you’ve heard Girish Agrawal speak about prudent principles of wealth management, you’ve likely heard the term ‘rebalancing.’ Rebalancing is an investment management method used by Girish, and all of the Agrawal Associate Consultants, to take advantage of market changes and manage the risk tolerance of clients.
An example of rebalancing
At a training session for financial consultants in Calgary, Girish used a fictional example to illustrate how rebalancing works.
In his example, the client’s ideal investment balance, based on risk tolerance, is 50/50 between fixed income and equity.
“If the market goes up, then we adjust to restore the balance to 50/50,” explains Girish. “This means we’re selling off equity while it’s high — which is what you’re supposed to do.”
If the market goes down, then we buy equity while it’s low to rebalance — another good long-term strategy to increase wealth.
When to rebalance
While this prudent principle doesn’t give financial consultants a crystal ball, Girish’s team has three triggers for rebalancing:
- When there is a change in the amount of money to invest; if a client has more money to invest or needs to withdraw funds from his or her investments;
- When the market changes by 2,000 points; or,
- If a client’s risk tolerance or long-term financial goals change.
Agrawal Associates consultants also meet with clients once a year to review their full portfolio, even if the other triggers haven’t been met.
- Agrawal Associates