Home bias is the tendency of investors to invest a majority of their assets in companies domiciled in their home country. Recency bias is the tendency for humans to believe that what has happened recently will continue to happen in the future.
Exact asset location depends on the percentage of a portfolio held in each of the three types of accounts as well as the percentage of the portfolio which is to be allocated to each selected sector. But the boost in after-tax returns is well worth the effort.
Diversifying your portfolio means finding assets that have value on their own merits but do not move exactly alike. A critical investment metric called “correlation” is used to construct a portfolio most likely to meet your personal financial goals.
A year ago when the markets were all setting new highs, people were asking what they should do with their retirement portfolio. I answered, “Rebalance.” Now that the market is setting new lows, I get the same question, and my response hasn’t changed.
Rebalancing your investments can help boost your returns and minimize risk. This simple contrarian move can help you compound your investment gains over time. With the markets at an all-time high, this may be a good time to rebalance your portfolio.
Market timing is the attempt to switch a significant portion of your assets between different types of investments in an effort to maximize profits. If this is your investment strategy, good luck, because you’ll need it.