Review, Revisit, Rebalance

Buy low, sell high -- rebalancing is the process by which assets are bought and sold in order to maintain a strategic (target) asset mix. Left to drift as a result of market movements, your portfolio could stray significantly, possibly compromising the ability to reach your longer-term investment objectives.

In addition to being an effective means of risk management, rebalancing has proven to increase portfolio returns; effectively encouraging the pruning of appreciated assets and the repurchase of assets which are (temporarily) not in favour. Research conducted by Russell Investments comparing the effect of rebalancing to a buy and hold strategy found that rebalanced portfolios not only outperformed but the risk of the rebalanced portfolios was reduced by more than half.

Aside from the potential for more favourable long-term results and reduced portfolio volatility, rebalancing may help ensure that your portfolio reflects your unique goals and circumstances at whatever stage you are in the investment life-cycle; however a successful rebalancing effort requires discipline and emotional detachment. Automating the rebalancing process often serves to remove emotion and build discipline.