InvestorQ : What are the typical reasons why I need to reallocate my portfolio?
Suhani Mirza made post

What are the typical reasons why I need to reallocate my portfolio?

Answer
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Aditi Sharma answered.
2 years ago


There are different reasons. It could be due to any external macroeconomic stimuli. It could also be internal to your portfolio and may be more about overexposure and underexposure. Let us look at 3 such situations.

Firstly, you need to reallocate when you overexposed to a theme, beyond a certain pivot point. This pivot point must be set in advance. It could be a sectoral story or a theme story. Any situation where a concentration on industries, dividends yields, mid-caps etc increases your concentration risk, it is a classic case for you to re-allocate your portfolio. It is a trigger!

At times the global and domestic macros undergo a major change. It could be due to factors like trade wars, currency wars, oil prices, geopolitical situation etc. Classic cases: Oil prices have crashed and you are exposed to drillers; China is slowing and you are focused on metals; RBI is planning to raise rates and you are overexposed to rate-sensitive stocks like auto, banks and real estate.

Finally, you could have got the undertone wrong. You may be defensive in your allocation and a bull market may be raging. Alternatively, you may have a very aggressive allocation and the market may be about to correct sharply. If the first two were cases of passive re-allocation, this is a case of active re-allocation. Be it in large caps when markets are fairly valued and be in mid caps when markets are undervalued, you need to be constantly on the lookout for reallocation opportunities that make sense to your portfolio. Be it stocks or bonds, an investor must always rebalance and go where the future growth is more likely.