Churning your portfolio often? Stats say otherwise.

Advisoira
Feb 23, 2022

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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