Why Rebalance Your Portfolio?
Many people ask me how I rebalance my investment portfolios, so I decided to write this comprehensive guide. You can decide whether to adapt my approach to your own investment strategy.
But first, the most important question: Why do I need to do this damn portfolio rebalancing?
The answer is simple: we’re ordinary humans and we don’t know anything. Many things are happening right now, right under our noses. This can be good or bad (depending on how leveraged you are) 😅.
Portfolio rebalancing serves two critical purposes:
- Risk Management: It frees up cash and reduces risk exposure
- Opportunity Capture: It increases exposure to capture opportunities that others haven’t “noticed yet”
However, I want to emphasize: we are flawed and weren’t given the ability to see the future. With this in mind, you should expect to be wrong 80% of the time.
As Warren Buffett said about champion stocks: [Warren’s wisdom about holding winners]
Therefore, making the right adjustments to your investment portfolio is a matter of survival. Imagine putting 100% of your wealth into Bitcoin in 2021? You’d be bald and down -70% right now. This is just one of thousands of examples I could give.
When to Rebalance Your Portfolio
The million-dollar question: When should you rebalance the blessed portfolio?
Industry vs. Personal Approach
Analysts say: Quarterly (Translation: We earn the fees) My approach: Once a year, preferably December 20th (Translation: Screw the analysts, it’s my money!)
Testing Different Frequencies
I’ve tested multiple rebalancing schedules:
- Monthly
- Quarterly
- Semi-annual
- Bi-annual
The truth: The money stays with the brokers and leaves our pockets. So the best thing to do is move as little as possible.
Why Annual Rebalancing Works
Starting from the principle that we know nothing (or very little), we risk even missing a great investment opportunity. This happened to me in the post-Dilma period in Brazil, because I was focused on my personal development.
My focus areas were:
- Knowledge
- Experiences
- Network
- Health
The only day I wanted to know about the financial market was on the fifth business day of each month, when I would contribute and decide where to send my money. That’s it – focus on yourself and let your investments mature on the side.
It’s all about rebalancing your portfolio with quality – but quality for you.
Where to Allocate Your Money
My Currency Diversification Strategy
I like to keep part of my money liquid and part invested in US dollars, primarily through Bitcoin.
Why Bitcoin for dollar exposure?
- I believe it’s the safest and most reliable way to hold and transport dollars literally using just your head
- Traditional bank dollars don’t attract me – they’re completely traceable
- In an eventual money emergency, I doubt big banks will give people like us any consideration
Liquidity Management
My liquid money allocation:
- 50% in brokerage account
- 50% in savings account
Many people think CDs/Treasury bills earn significantly more than savings accounts. They do, but very little. The focus here is immediate liquidity!
How My System Works
The 50/50 Rule
My model breakdown:
- 50% liquid money
- 50% progressive investment
Liquid (50%):
Money in brokerage account and regular savings
Progressive Investment (50%):
With each market drop, I buy 5% of available cash in an asset I’ve already studied
The VIX Tracking System
How this approach works:
- Track the VIX – I set up an alarm on it
- Automated alerts – For every X percent increase, it sends me an email notification
- Daily monitoring – I follow the market during the day
- End-of-day positioning – At market close, I place a buy order for the next day
- Back to life – Return to work, business, family, leisure, and myself
Why This Approach Works
Financial markets are addictive, partner. I’ve been on both sides and know how it works. Take what’s yours and disconnect. If you stay online, you’ll see too much stuff you shouldn’t have seen.
Final Thoughts: The Dancing Opera Concludes
The Reality of Investing
There’s a lot of mysticism about investments, and there probably should be. But the truth is that markets are made by:
- People
- Bots
- AI
And people are predictable. I’ve seen and lived through a lot. My biggest lesson: Take advantage of opportunities! Because they are rare…
Learning from Experience
I would have other stories to tell if it weren’t for:
- The post-Dilma period (Brazil ex-president)
- Bitcoin in 2017
- COVID-19
I know it’s not all roses, but we’re here to exploit a gap and make money fast. Cash out and go back to watching Netflix and reading books. My only marriage is with my wife. Companies, I see as cycles nowadays.
The AI Era Reality
Moreover, we’re in the AI era. Mary Meeker has already released her brilliant predictions about our future. So take advantage while there’s time. Soon the market should be much more automated than today.
Remember: This is a personal strategy based on individual experience. Always consult with financial advisors and do your own research before making investment decisions.