Churning your portfolio often? Stats say otherwise.
If you are thinking about how low churn affects your returns, here’s an example of why booking short term gains makes no sense:
Assume a portfolio worth $100 million.
Assuming you get a 10year average Sensex return and the cost of churning is around 100 bps;
If you churn this portfolio after every 2 years:
Over a 10 year period, your CAGR amounts to 13.8%.
If however, you do not churn it often, it amounts to 14.5% CAGR.
This means 9% of your final corpus would have been lost.
HUGE.
Which is $350000 in absolute dollar terms.
So if you or any of your colleagues are into churning their portfolio's again and again, try to let them know this isn't a sound decision.
Stick to your investment philosophy.
Cheers!
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