Reset your long-term portfolio at regular intervals to create wealth

livemint.com:

Investing in the right fund or product by itself doesn’t assure wealth creation. Smart investors rely on process and discipline. This process is reviewed and repeated for multiple years. The choices we make daily may not matter today, but they do so in the long term.

If we give a blank slate to different investors to create their best portfolio, they would be very different. These decisions would be biased, based on everyone’s subject matter expertise and past experiences. Even great investors have vastly different portfolios, yet they manage to beat the markets independently. Another flaw with a lot of investors is that even if they have made a wrong investment, they hold on to the positions and hope that they will eventually be proven right. Similarly, they sell winning positions either ‘too early’ or ‘too late’, depending on their temperament and not on any logical, well-defined process.

Ideally, investors should replace the thought process of ‘long term investment will create wealth’, with ‘long term investment will create wealth until facts change’. If in doubt, analyse the number of funds that managed to generate minimum benchmark level returns in the last 10, 15 or 20 years, and you will be surprised/shocked. Anything that evolves like markets, technology, careers, etc., must be approached with the mindset that all great ideas can expire, and when they do so, you’re better off walking away rather than attempting to repair them.

Here are some key reasons why regular review of portfolio is important:

Dynamic rebalancing: As financial markets exhibit inherent volatility, the performance differentials among diverse asset classes necessitate a vigilant response. Periodic reviews empower investors to identify