Rebalancing your “core and explore” portfolio

Resist the urge to let the “explore” portion of your portfolio grow larger.

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From the February/March 2014 issue of the magazine.

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Q: I subscribe to the “core and explore” strategy. Where does that leave me when it comes to my yearly rebalancing?

—Shawn Lawrence, Calgary

A; “Core and explore” is when you have “core” investments that are relatively conservative and perhaps passively managed, complemented by “explore” investments that are riskier and may be actively managed. The key to making this strategy work is to establish a target asset mix and keep to it, locking in your profits as best you can.

Cherise Berman, a principal with Bespoke Financial Consulting, recommends that “if the ‘core’ portion of your portfolio performs well, then take your profits and rebalance back to your target asset mix.” This works the other way too—in years where “explore” outperforms, you would rebalance and increase your exposure to “core.”

What you sell within your “explore” portfolio would be based on your research, but the target asset mix wouldn’t change. Resist the urge to let the “explore” portion of your portfolio grow larger—in years when it does well, do yourself a favour and rebalance so your exploration is more like Christopher Columbus and less like the Franklin Expedition.

Bruce Sellery is a speaker and author of The Moolala Guide to Rockin’ Your RRSP. Do you have your own personal finance question? Write to us at ask@moneysense.ca

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