tailieunhanh - The Elements of Investing by Burton G. Malkiel and Charles D. Ellis Dec 14, 2009_5

Tham khảo tài liệu 'the elements of investing by burton g. malkiel and charles d. ellis dec 14, 2009_5', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | Diversify if the stock market falls sharply and bonds rise in price as was the experience of investors in 2008 What do you do then The correct response is to make corrective changes in the mix of your portfolio. This is what we mean by rebalancing. It involves not letting the asset proportions in your portfolio stray too far from the ideal mix you have chosen as best for you. Suppose the equity portion of your portfolio is too high. You could direct all new allocations as well as the dividends paid from your equity investments into bond investments. If the balance is severely out of whack you can shift some of your money from the equity fund you hold into bond investments. If the proportion of your investments in bonds has risen so that it exceeds your desired allocation you can move money into equities. The right response to a fall in the price of one asset class is never to panic and sell out. Rather you need the long-term discipline and personal fortitude to buy more. Remember The lower stock prices go the better the bargains if you are truly a long-term investor. Sharp market declines may make rebalancing appear a frustrating way to lose even more money. But in the __ 67 __ The Elements of Investing long run investors who rebalance their portfolios in a disciplined way are well rewarded. When markets are very volatile rebalancing can actually increase your rate of return and at the same time decrease your risk by reducing the volatility of your portfolio. The decade from 1996 through 2005 provides an excellent example. Suppose an investor s chosen allocation is 60 percent in stocks and 40 percent in bonds. Let s use a broad-based . total stock market index fund for the equity portion of the portfolio and a total bond market index fund for the bonds to illustrate the advantages of rebalancing. The table on page 69 shows how rebalancing was able to increase the investor s return while reducing risk as measured by the .