Reviewing and Rebalancing of Portfolio

The last step towards a frugalavish lifestyle is reviewing and rebalancing of your portfolio. You can click on the links below to read the first 3 steps which have been posted:

1. Clear credit card debts or personal loan and save RM500
2. Setting financial goals and correct mindset
3. Creating action plan and the types of investments in Malaysia

Record and track investments

To review and rebalance our portfolio, first we would need to know the performance of our investments. This can be done by recording our investments by using simple tools such as Excel. Certain investments need active tracking while others can be done sparsely. The frequency of recording and tracking depends on the time frame of your investments. For example, if you are trading stocks, then tracking and recording your trades can be a daily task. However, if you have mutual funds for example, you might only need to track every quarter.

If you are a stocks trader, below are the info that you can put into your Excel sheet:

• date of buying/selling of stock
• stock name, stock code
• quantity of stocks
• price of stocks
• gross & net profit/loss
• reasons for buying/selling

If you have a rental property, you can include the following info:

• monthly repayment
• water/electricity/maintenance fees etc
• rental income
• monthly profit/loss

Reviewing and rebalancing of portfolio

At the end of each month or quarter, if you have different types of investments, you can transfer money into your winning investments from other investments. For example, your ETF portfolio earns you 5% in 1 month while your stocks are earning 1% in that month. You can then transfer some capital from stocks into ETF portfolio to earn more from the same pool of capital.

Reviewing and rebalancing of portfolio is very important. This is because the opportunity cost can be huge. For example, your ETF portfolio earns you 10% in a month but stocks are earning only 1% and you do not rebalance your portfolio, the potential earnings is your loss. Instead of transferring the capital from stocks to earn additional RM500 in ETF, you earn only RM50 from stocks. However, this is only true if ETF and stocks still perform the same for the following month. Therefore, investing is an art.

Making decision to rebalance portfolio

After reviewing your portfolio, making the decision to rebalance the portfolio is not easy. What if the stocks head south after you transfer capital from the other investment? What if the company declares bankrupt after you invest in it using capital from your other investment? Therefore, you should make the decision only after deliberate research and careful planning. Below are some questions that you can ask yourself before making the decision:

• what is the purpose of the specific investment vehicle?
• has the investment achieved its profit %?
• when is the end of the time frame given to the investment?
• how well the investment resonates to our short, mid, and long term goals?
• what are the possible consequences of rebalancing/not rebalancing the portfolio?

Experience definitely helps in making better decision. However, experience is gained from making mistakes. Therefore, make more mistakes, and make them early. Then, learn from the mistakes and make better decision moving forward.

My 2019 portfolio

2019 was an experimental year for me. I ventured into P2P and robo-advisors to see what works for me and what doesn’t. Below is the summary in %:

• stocks: 1.09%
• robo-advisor: 12.38%
• P2P: 3.8%

Last year was a busy year for me due to my work, and as I’m a short-term trader, I don’t really have much time to monitor the stocks. Added with the volatility of the stock market, my time frame for the stocks are really short. In total, I have only done 4 trades thus the lower % as I do not keep it for long.

Besides that, for P2P I invested into Funding Societies and B2B Finpal. Funding Societies is earning me 4.8% without considering the additional revenue from referral fee. On the other hand, B2B Finpal is earning me 2.8%

 

Based on the performance, I’ll definitely park more money into robo-advisors due to the high % compared to my other investments. I’ll write a review on the robo-advisors in Malaysia in the next post.

How did your investments fare in 2019? What are the things that you learned from your mistakes in investments? Please feel free to share in the comments section below.