How to Get Rich (Or Richer)
Dr Vernon Coleman MB ChB DSc FRSA
You will often hear investment advisers and financial journalists recommending that you regularly rebalance your investments.
`Sell any investment which has risen in value,’ they say. `And buy more of those investments which have fallen in value.’
They tell you to do this, they say, so that your investment portfolio doesn’t become unbalanced.
Here’s what they recommend:
Imagine that you bought £2,000 worth of share A and £2,000 worth of share B.
At the end of a year share A has doubled in value to £4000 and share B has halved in value to £1000.
So now you have £5,000 of investments.
Many professional advisers recommend that you rebalance by selling half of your holding of share A and doubling your holding of share B.
In my view this is absolute lunacy.
Why do they recommend that you sell the company which has done well and buy more of the company which has done miserably?
(I am assuming that there is no logical reason why you should sell company A or buy company B.)
Could it possibly be that they recommend this course of action so that you ‘churn’ your account – and spend more on costs?
(Remember that financial journalists work for papers or magazines which usually rely on investment company adverts for their income.)
I don’t listen to these people.
If I think that the reason for holding these two companies has not changed since I bought them then I hold on to both. I may be tempted to buy more of company B if the share price has fallen for no good reason. But why would I sell company A if the share price has doubled because the company is well managed, doing well and paying decent dividends?
In my opinion you won’t ever get rich (or richer) by selling your good investments and increasing your holding of your bad ones.
Copyright Vernon Coleman 2018
Vernon Coleman’s book on investing is entitled Moneypower and it is available on Amazon as an ebook.