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- a yearly rebalancing of the portfolios (at the beginning of the year)
- the reinvestment of dividends
A balanced portfolio includes both stocks and bonds, helping you spread your investments across different types of assets. Stocks offer higher growth potential, while bonds add stability and reduce short-term volatility. The right mix depends on your personal preferences.
Everyone reacts differently to market ups and downs. Some investors are comfortable with risk and accept temporary losses for long-term gains. Others prefer more safety, even if that means lower returns. That’s why your risk tolerance is a key factor when choosing your allocation.
It’s important not to focus only on performance. A portfolio with higher returns might also experience deeper drawdowns and longer recovery periods. By comparing portfolios over time, you can better understand how they behave in both good and bad markets.
Bonds are especially useful during market downturns, as they tend to cushion the impact of falling stocks. However, bonds also come with risks—such as inflation or rising interest rates—which can reduce their real value over time. Understanding these risks is essential to avoid false expectations of “safe” returns.
Your investment horizon also plays a role. If you’re investing for the long term, you might accept more risk early on and reduce it as you approach your goals. But if you’ll need the money soon, stability becomes more important than chasing high returns.
In the end, there’s no single “best” portfolio. What matters is finding a balance that matches your goals, time horizon, and emotional comfort. A well-diversified portfolio helps you stay invested, avoid panic decisions, and grow your wealth with greater peace of mind.
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