SMART MONEY DIARY
Step 4 & 5
Set up Your Saving Plan and Yearly Review
Set up Your Investment Saving Plan
Depending on the selected broker, you either have to initiate a monthly transfer to your brokerage account in order to have sufficient funds for order execution or the broker is pulling the set amount for your saving plan from your reference bank account via direct debit.
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If your saving rate is changing on a monthly basis, meaning, you decide at the beginning of the following month how much of the remaining amount of money you want to save, then initiate the transfer manually, of course.
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Congratulations, with execution of the first saving rate, your money is put to work and you can sit back and enjoy the freedom to focus on what matters most in life.
Check-in Once a Year and Rebalance If Necessary
For investors who have chosen several ETFs for their individual portfolio mix, there should be done once a year a quick check how the asset allocation has developed. For example, if one of the regions has significantly outperformed other regions in your globally diversified portfolio, you should rebalance the portfolio allocation to the initially defined target allocation. That's in order to maintain best possible regional diversification and the initially chosen risk profile. This process is called portfolio rebalancing. Rebalancing should be done once per year and only if there are significant deviations to the initial portfolio mix.​ Some broker firms do offer automated rebalancing for a small extra fee. That's very convenient.
More information about portfolio rebalancing, why it is important, which rebalancing types and strategies exist and which portfolio rebalancing strategy is the best, you will find in the blog article Importance of Investment Portfolio Rebalancing and its Impact on Performance.
More active investors might want to use opportunities during special market situations, for example, if equity markets went down and bond ETFs went up, like in the following example:
Initial Weighting
Equity markets down
Rebalanced
Equity
70%
Bonds
30%
Buy
Equity
40%
Sell
Bonds
60%
Equity
70%
Bonds
30%
Source: Smart Money Diary - Dec 2022
When talking about opportunities like in the above example, this leads automatically to the often asked question: when should I go into the market? Is it too expensive or will it further go down and I should simply wait to make a super bargain? Since this is so often a topic investors come up with, please check out the following section and the blog article about superior market timing and don't forget to watch the short movie about Bob, the probably worst market timer among all investors.