Time To Rebalance The Portfolio

The equity market runs on fear and greed. In the last six months we have seen the extremes of both. First it was fear that led the market to fall by almost 40 per cent in a span of less than 50 days and again there was greed and fear of missing out that led us to gain more than 50 per cent from the lows. Such a sharp surge without a commensurate rise in economic activity or earnings of corporates is quite ironical. It is indeed surprising that the valuation of frontline equity markets has reached historical highs.

Therefore, it is time to be cautious and also the time to rebalance your portfolio. Although, we prefer rebalancing as an annual activity, looking at the sharp run in the equity market, we believe that the portfolio of many an investor might have seen the weight of equity increasing or getting skewed towards equity. Rebalancing will help you lock in some profit and restore asset allocation. Many a times it happens that investors enter the market during the euphoria phase and exit the market during depression. In fact, one should do exactly the opposite.

However, for a majority of retail investors it would be difficult to time the market while keeping aside all emotional biases. Therefore, for them, our advice is to stick to planned asset allocation. Aggressive investors may continue with their equity exposure and can rebalance their portfolio at the year-end or at a pre-decided time. Our cover story this time will help you understand the different options available to protect your wealth from any imminent fall in the equity market. At the same time, if the equity market picks up further momentum, you will not lose much. Hope our stories will help you take an informed and profitable decision.

SHASHIKANT