Harvesting returns out of your “discover” investments


Yes, it’s true that a global balanced portfolio will not deliver total returns of 2,800% over five years like Tesla did. Those are the kind of lottery-like returns investors strive for when they adopt a core-and-explore approach.  

Your core portfolio, meanwhile, is supposed to be the risk-appropriate and steady vehicle that makes up the bulk of your retirement savings. It’s not prone to the wild swings that individual stocks, thematic ETFs or cryptocurrencies bring to the table.

Case in point: The Horizons Balanced TRI ETF (HBAL) represents a balanced portfolio of 70% stocks and 30% bonds from around the world. During that same period in 2020 when Tesla’s share price was down 52.55%, HBAL’s price was down only 20.83%.

A reasonable approach to take with your Tesla shares would have been to sell half of your gains each time the stock price doubled and put the profits back into your core portfolio. This way, you’d still maintain your original position in Tesla without allowing this one individual holding to dominate your portfolio and skew the makeup of your overall asset mix.

The bottom line: Investors who adopt a core-and-explore approach to their portfolio should determine a target percentage to allocate towards more speculative investments. Outsized returns from the explore side of the portfolio should be reasonably trimmed back to maintain this target threshold. This approach can reduce risk and allow profits from one investment to be reinvested back into the main core portfolio.

What about investment losses?

It makes sense to monitor your speculative investments and take profits from time to time, but this assumes your investments are indeed profitable. The same approach can be taken with any losing picks.

It’s reasonable to cut your losses on a bad investment rather than waiting for the price to recover. Remember, the investment doesn’t care what price you initially paid. Its future returns are all that matters.

Do you still have conviction that the investment will turn around? Or would you be better off selling it and putting that money into another investment with better future prospects? It’s helpful to think back to the rules you originally designed around your core-and-explore portfolio, and to reassess your capacity for risk. If you’re agonizing over a badly performing investment, maybe it’s time to sell those losing positions and trim back the percentage you allocate to speculative investments. 


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