Behavioural Finance in Portfolio Rebalancing
Why do investors struggle with portfolio rebalancing? Emotional decisions. Behavioural finance shows us how biases like loss aversion, overconfidence, and herd mentality derail disciplined strategies. For instance, fear of “locking in” losses often stops investors from selling underperforming assets, while recency bias tempts them to chase market winners. The solution? Systematic rebalancing. By sticking to predefined rules and leveraging tools like automation, investors can avoid emotional pitfalls, keep portfolios aligned with their goals, and improve long-term returns. Studies reveal that portfolios rebalanced annually outperform unmanaged ones, with gains up to 0.56% annually over a decade. ….[READ]
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