Best way to redistribute and rebalance portfolio

[abel7685]

The question I have is one of those "good problems" questions. When I first started investing around five years ago I made sure to carefully balance my portfolio, never having one stock make up more than 5%-10% of my entire portfolio. However, over the years as I have cut the losers and added to the my winnings many of my initial investments, such as MVL, ATVI, EBAY, SYMC, YHOO, now make up a significantly large portion of my portfolio. I have very rarely sold my winners over the years but now that these stocks make up such a large percentage of my portfolio even the smallest movements can be quite painful (especially when it is a movement down!).

My question is how is the best way to redistribute and rebalance my portfolio? When I first started investing five years ago I had around 20 stocks with equal share. Now I currently have 5 stocks which make up nearly 80% of my portfolio. I am scared to sell my winners as I don't want to lose out on more gains, but at the same time I am frightening when one of these stocks moves down quickly (such as EBAY or SYMC recently). I want to make money please tell me how is that possible. How the decision has to be taken.

[mayurpathak]

Hi Abel,

Before I start, let me tell you two things. One, I'm not a finance expert. Two, I dont invest in stocks, but mutual funds. I'm a hardcore marketing guy and always work on instincts and common sense.

Now, your question is indeed good, but very generic and common. Every investor in this world strives to maintain a balanced portfolio. However I can assure you that no body has been consistently able to beat the market on a regular basis, not even the best fund managers.

The key behind balancing your portfolio is diversifying, and doing it correctly. From your current port folio I understand that majority of your holdings are in Technology, specifically IT. Well nothing wrong because these are the companies who have done exceptionally well and boosted the market numbers. Having said that, not all companies have done exceptionally well. So about a couple of decades ago, if you may have thought that some other XYZ bangalore based company was more profitable and gave a skip to Infosys, you would have repented your decision today. So the first diversification that you can do is horizontal one. You may invest in variety of companies from one particular sector that you think has more promise. In that way you balance your folio, negate high risk and at the same time dont lose much on the gains. Make sure that you hold not more than 10-15% of stocks of these companies. Work on the opinion of industry experts as well as your instincts while selecting your stocks.

Next way is vertical diversification. There may be a number of sectors that are booming. Lets say now real estate is as hot as IT. Probably more than that. So you may also look at replacing the existing stock with some other having an equal growth opportunity. At the same time, dont forget the long term advantage that you may get out of this. There were sectors that showed an initial promise and fizzled out in time. So be careful while investing in a new unexplored sector. However, this is what I'm talking keeping short term growth in mind. If you are a long term player, you may also look at companies who do not look so promising on the stock market on a daily basis, but have shown steady growth with time. For instance consumer electronics and automobile. But be careful about selecting the companies you invest in.
Always keep 10% aside to invest in other instruments say debt, bonds and divident based mutual funds.

hmmm... I guess the post is getting longer. Have I answered your question? May be in a generic way. I will come back with some thing better. Go through this link, you may find it good. http://www.investopedia.com/articles/03/072303.asp

One advise: Keep patience, a lot of it.

[marcos99n7]

Here is a good mental exercise to try--You must be honest with yourself.

Imagine that right now all your portfolio dollars are sitting in cash only. How much of that cash would you be willing to invest in each of those five stocks today? At today's price? (Be honest!)

Based on the results of this reassessment, you might want to sell off the percentage of each stock that would bring your holding down to the dollar value you'd be willing to invest today. If you've ever wanted to know how to truly make money in the stock market - without the agonizing stress and uncertainty then Portfolio Crafter is the answer (as far as I know). Techniques like killing move and loopholein the Investment Advisor Act can enable you to bank up to double-digit returns on your investments during any given month. Just google on Portfolio crafter and you get the gate of success in stock Market.

[integratdbrains]

I suggest you should give up some part say around 50% of your portfolio and try exploring other options.this will not only ease your worry but also will help you gain more through other options.