Changing asset allocation is a sure shot way of ensuring risk mitigation in an investor’s portfolio. But if you are already owning a portfolio of equity that you built assiduously, you are posed with a peculiar problem. Should you sell your equity portfolio down as part of your risk mitigation?
This is an often asked question. The answer is specific to the composition of your portfolio, the valuation of stocks within, and the need to action at the stock level. One cannot take a secular view of a portfolio. But, there is a simpler approach that will work in improving your asset allocation.
Incremental investments can be channeled into other asset classes. Monies freed up by selling out of individual stocks for position resizing and risk mitigation can be repurposed and a gradual reset of asset allocation accomplished. Investors must overcome the anxiety to undertake drastic action and choose a measured approach to reset asset allocation. Risk mitigation when done gradually will still accomplish the desired outcome. In fact, haste often gives investors a sense of missing out on the upside and a more rehearsed approach ensures that adequate discipline is maintained even while moving out of an existing higher return generating asset class into a lower return generating asset class.
Maintaining a measured approach is also the secret formula for a successful asset allocation. Investors must overcome their anxiety to catch the top and instead focus on capturing a better asset allocation in their portfolio. Importantly, they must pace this transition right so that they accomplish enough before it becomes too late.
