The Art of Balance: Rebalancing Your Investment Portfolio for Success

Strategic Insights -

Investing in mutual funds can be a balancing act, with no single type of investment or sector consistently leading the way. To succeed, it's essential to spread your bets across a variety of investments, some in bonds, stocks, small-sized companies, and large ones, both in Canada and internationally. A hypothetical portfolio created by Altamira Investment Services, invested two-thirds in stocks and one-third in bonds, saw significant improvements in results over 20 years when constantly rebalanced back to its original mix.

Key Takeaways:

  • A hypothetical portfolio created by Altamira Investment Services, invested two-thirds in stocks and one-third in bonds, showed improved results over 20 years when constantly rebalanced back to its original mix.
  • A once-a-year rebalancing act produced an extra quarter of a percentage point of return while reducing risk at the same time.
  • A strategy of constantly rebalancing back to a mix of large-cap, small-cap, resources, and international holdings, with 20% in bonds, produced a 1.25% boost in annualized return over five years, according to Royal Mutual Funds analyst Paul Butler.
  • Rebalancing only when there's a need or changing circumstances, as suggested by Gordon Garmaise, a Toronto asset allocation strategist, can also achieve a balancing act.
  • Strategically matching up funds that don't always move together, such as Marathon Equity Fund and AGF Special Fund, can minimize losses and maximize gains.
  • Examples of well-matched funds include Trimark's Canadian Fund and Guardian International Income Fund, and Altamira Select American Fund and United's Canadian Growth Fund.

Statistics:

  • 20 years: constant rebalancing improved results in a hypothetical portfolio invested two-thirds in stocks and one-third in bonds.
  • 1 quarter of a percentage point: once-a-year rebalancing act produced an extra return.
  • 20%: portion in bonds in a hypothetical portfolio created by Altamira Investment Services.
  • 1.25%: boost in annualized return over five years according to Royal Mutual Funds analyst Paul Butler.
  • 1995: April 30, end date for calculating annualized return.
  • 63.8%: Marathon Equity Fund's annualized return during the next two years after a loss of 1.7% over the previous two years.
  • 10.6%: AGF Special Fund's annualized return during the two years ended December 1991, compared to Marathon Equity's 15.9% and subsequent 63.8% annualized returns.

Sources:

  • Altamira Investment Services
  • Royal Mutual Funds
  • Gordon Garmaise, Toronto asset allocation strategist
  • Gordon Powers, The Affinity Group