Portfolio Rebalance

Here’s your account: Pretty broad-based equity portfolio. And pretty pie chart too, there. Nice going, editors.

17% banks and insurance...

14% telecommunications...

9% consumer comestibles...

6% drugs, legal ones...

11% chemicals and commodities...

8% transport...

and whoa... 35% tech!

Just 5 years ago, tech was only 15% of your portfolio, and it performed better than double the returns of the rest of the market in that time period. So wow. What time is it?

Need a high-tech watch to answer?

NO!

It’s rebalancing time!

Why?

Because you want to just compound at market rates, and yes, tech has been amazing and wonderful and loving. But tech can get crushed in bad times as well, and the huge 37% exposure to it is…keeping you up at night. It’s just too much risk attributed to one relatively narrow area of the investing economy.

You’re thinking about making tech more representative of a balanced, broad S&P 500 index fund, where, in that fund, it represents only 11%. So you sell some Apple, you sell some Google, Amazon, Facebook, Netflix, Microsoft, and you buy a smattering of Chevron, and Ford, and Dow Chemical, and Bank of America.

In practice, portfolio managers rebalance their portfolios all the time, so they represent the promise they made to investors to be a fully diversified fund, taking only market risk in the process. And if they still need to do any rebalancing beyond that, they uh, typically just enroll in a hot yoga class.