- Written by John Bloomfield
Re-Balancing of investment portfolios can to many amateur investments seem counter intuitive. If you’re not familiar with the concept re-balancing an investment portfolio is the act of returning the funds held back to the proportions in which they were originally purchased.
So imagine you have a portfolio of just 2 funds. Fund A and Fund B. Initially you bought £50 of each. But after a year Fund A is worth £175 and Fund B is worth £25. Now to ‘rebalance’ we would sell £75 of fund A and with the proceeds buy £75 of Fund B so that now we have £100 of each.
As you can see this usually means selling funds that have done well and using the proceeds to purchase more of the funds that have not done so well.
So on the face of it you’re selling your winners to buy losers? That can’t be right can it?
Absolutely it is and in the rest of this article I’m going to explain exactly why professional investors do this.