Rebalancing Your Portfolio


You may be thinking "I've made my investment choices. Why do I need to rebalance?" The simple fact is that your portfolio's investment mix doesn't stay constant. As the markets move, the difference in returns between assets will cause a portfolio's investment mix to drift from its target allocation.

For example, if the stock market is going up, an account with a 60% stock / 40% bond investment mix may eventually morph into an 80% stock / 20% bonds mix due to the higher returns from the stock-based investment options.

To adjust for this drift, your portfolio should be periodically rebalanced. This means selling a certain portion of the investments that have performed relatively well and using the proceeds to bring your proportion of weaker-performing but safer investments back into line.

Why Rebalance Now? I'm Making Money!

Rebalancing is a way to manage risk. Consider this: if, over time, your stock allocation increased and your bond allocation decreased from your original allocation percentages, you could end up taking on more risk than you intended. Using the above example, if the stock market subsequently has a big drop, you'd have greater losses from an account with an 80% stock / 20% bond investment mix than if that account had been rebalanced back to its target mix of 60% stock / 40% bonds.

When to Rebalance

Check to see if the investment provider for your retirement savings account offers automatic rebalancing. If yes, you may want to take advantage of this feature. If not, consider doing a rebalance check once every six months or whenever the market has been especially volatile.

Your financial professional can help you learn more about rebalancing and help you create and maintain an asset allocation that fits your needs and circumstances.

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