Meet Ravi, an IT project manager in his mid-30s managing multiple software development teams across different time zones. With a demanding job and tight deadlines, Ravi struggles to find time for personal activities, let alone manage his stock market portfolio rebalancing. He knows it’s essential for maintaining his financial goals, but the process feels overwhelming amidst his hectic schedule.
This is the story of how Ravi learned to balance his investments and career, using strategies like age-based rebalancing, fixed money allocation-based rebalancing, time-based rebalancing, and goal-based rebalancing to stay on track.
Ravi’s Initial Portfolio Imbalance
Ravi started investing a few years ago with a simple 60/40 stock-to-bond portfolio. Over time, he noticed that his stock investments were doing much better than his bonds, and the stock portion of his portfolio had grown to 75%, while bonds dropped to 25%.
The imbalance made Ravi uneasy, as he was taking on more risk than he had planned. He realized that proper stock market portfolio rebalancing was overdue, and it was time to make some adjustments before things got out of hand.
Age-Based Rebalancing: Adjusting to His Stage in Life
Ravi’s first step was to look at his portfolio through an age-based lens. He discovered the age-based rebalancing strategy, which involves adjusting your portfolio based on your age. The rule of thumb is to subtract your age from 100 to determine the percentage of your portfolio that should be invested in stocks, with the rest going into safer assets like bonds.
At 35, Ravi calculated that he should have 65% of his portfolio in stocks and 35% in bonds. To bring his portfolio in line with this, he sold some stocks and bought bonds, ensuring that his portfolio was balanced in accordance with his age and risk tolerance. Stock market portfolio rebalancing in this manner gave Ravi confidence that he was on a safer path.
Fixed Money Allocation-Based Rebalancing: Simplifying the Process
Next, Ravi decided to use a fixed money allocation-based rebalancing strategy to make his portfolio easier to manage. In this approach, he set fixed amounts of money for each asset class, allocating ₹15,00,000 for stocks and ₹10,00,000 for bonds. As time passed, his stocks grew to ₹18,00,000 while his bonds decreased to ₹7,00,000.
Recognizing that his asset allocation had shifted, Ravi sold ₹3,00,000 worth of stocks and bought bonds to rebalance his portfolio. This fixed allocation made stock market portfolio rebalancing a straightforward process, reducing the need for constant monitoring.
Time-Based Rebalancing: Making It Work with a Busy Schedule
For someone with a packed schedule, Ravi needed a rebalancing strategy that didn’t require constant attention. He found that time-based rebalancing fit his lifestyle perfectly. This strategy involves rebalancing your portfolio at set intervals—quarterly, biannually, or annually—regardless of market conditions.
Given his workload, Ravi chose to rebalance his portfolio once a year. At the end of each year, he reviewed his investments and adjusted them if they had drifted from his original allocation. This approach allowed him to stay disciplined without requiring frequent intervention, making stock market portfolio rebalancing less of a burden.
Goal-Based Rebalancing: Aligning with Future Objectives
As Ravi’s financial goals evolved, so did his investment strategy. He was now saving for his children’s education, a new home, and early retirement. To manage these different goals, Ravi adopted a goal-based rebalancing strategy, customizing his portfolio for each objective.
- For his long-term retirement goal, Ravi maintained a higher percentage of stocks (80%).
- For his children’s education, which was closer, he adjusted to a 60/40 stock-to-bond allocation.
- For his home purchase, a short-term goal, Ravi became more conservative, with 70% in bonds and 30% in stocks.
With goal-based rebalancing, Ravi could fine-tune his investment strategy to meet each milestone. He thus ensured that his portfolio remained aligned with his life’s priorities.
Automated Rebalancing: Letting Technology Do the Work
Despite learning various rebalancing strategies, Ravi found that his busy schedule sometimes got in the way of managing his portfolio manually. That’s when he turned to automated stock market portfolio rebalancing tools, like robo-advisors, which adjust portfolios based on pre-set parameters.
Ravi set up his ideal asset allocation. The tool rebalanced his portfolio automatically whenever the allocations drifted too far from his targets. This gave him peace of mind, knowing his portfolio was being looked after without him having to constantly check on it.
By using these different rebalancing strategies—age-based, fixed money allocation-based, time-based, and goal-based—Ravi was able to maintain a balanced portfolio that fit his busy lifestyle. With the help of automation, stock market portfolio rebalancing became a manageable task. This allowed Ravi to focus on his career while staying on track with his financial goals.