05-09-2014, 11:37 AM
I haven't re-balanced yet but I could see myself doing it in the future.
My 401k has a roughly equally balanced portfolio of 50 positions. I suppose I would consider re-balancing it if I had something grow to 10% or more of the portfolio and was obviously overvalued, but I haven't sold anything yet to re-balance and I'm sitting on several 50%+ gains.
I'm in an investment club with some college buddies and we are long Under Armour since around $6, so the position grew to represent about 35% of our portfolio value. I tried a few times to get the other members to sell some when it reach $60 but we decided we believed in the long-term prospects for the company and were willing to ride out a downturn. Since then the shares have dropped about 25% from the high. Trimming may have been a good idea in hindsight for the short term, but that would have also triggered large capital gains and would have taken away upside for future prospects in the company. We only meet every other month so this isn't a place where we have active management of positions.
In short, I think there is something to be said for letting your winners run, especially in the accumulation phase. However, in situations where a position has become obviously grossly overvalued I think its prudent to trim back and put the money to work elsewhere. Finally, if I'm relying on my investments for income in retirement, I think its good to spread out the risk and would probably be more active in keeping things somewhat in balance.
My 401k has a roughly equally balanced portfolio of 50 positions. I suppose I would consider re-balancing it if I had something grow to 10% or more of the portfolio and was obviously overvalued, but I haven't sold anything yet to re-balance and I'm sitting on several 50%+ gains.
I'm in an investment club with some college buddies and we are long Under Armour since around $6, so the position grew to represent about 35% of our portfolio value. I tried a few times to get the other members to sell some when it reach $60 but we decided we believed in the long-term prospects for the company and were willing to ride out a downturn. Since then the shares have dropped about 25% from the high. Trimming may have been a good idea in hindsight for the short term, but that would have also triggered large capital gains and would have taken away upside for future prospects in the company. We only meet every other month so this isn't a place where we have active management of positions.
In short, I think there is something to be said for letting your winners run, especially in the accumulation phase. However, in situations where a position has become obviously grossly overvalued I think its prudent to trim back and put the money to work elsewhere. Finally, if I'm relying on my investments for income in retirement, I think its good to spread out the risk and would probably be more active in keeping things somewhat in balance.