Davide Semilia @DavideSemilia: "The Free Lunch Most Investors..."

Italy

The Free Lunch Most Investors Leave on the Table Imagine you plant two trees in your garden. One grows fast, the other slow. After a year the fast one takes all the sunlight and the slow one starts dying. A smart gardener would trim the big one and give the small one room to breathe. That is exactly what portfolio rebalancing does with your money. Say you start with 60% stocks and 40% bonds. After a great year in equities, your portfolio drifts to 75/25. You feel rich. Why touch it? Because you are now carrying far more risk than you signed up for, right before the next correction punishes you for it. Rebalancing means selling a slice of what grew and buying more of what lagged. You are systematically selling high and buying low without needing to predict anything. Here is a real example. A 60/40 portfolio rebalanced once a year between 2000 and 2020 returned roughly 6.4% annually. The same portfolio left alone drifted to 80/20 by 2007 and got crushed in 2008, taking years longer to recover. The practical move: set a calendar reminder every January and July. If any asset class has drifted more than 5 percentage points from your target, trim it back. Two check-ups a year, ten minutes each. That is all it takes to keep your risk where you actually want it. $SPY (State Street SPDR S&P 500 ETF) $BND (Vanguard Total Bond Market ETF) $VTI (Vanguard Total Stock Market ETF) $AGG (iShares Core U.S. Aggregate Bond ETF) $VOO (Vanguard S&P 500 ETF)

Not investment advice. The author may have financial interests in the mentioned instruments.