Rebalancing Your Portfolio |
|
It’s important to review your asset allocation from time to time to decide if you’re making progress toward your long-term goal of accumulating retirement savings. Even if you decide the allocation model you’re using is still right for you, you may need to rebalance your portfolio. One reason to rebalance is that a portfolio may be out of alignment because of what has happened in the investment markets.
For example, suppose you’re allocating 30% of your portfolio to fixed income investments such as bonds and stable value funds. If your stock funds lose value, as they are likely to do in a bear market, you may discover that the fixed income portion of your portfolio is worth significantly more than 30% of the total.
If the allocation model still seems right, you may decide to increase the dollar amount you’re putting into equities at least for the present to help build that asset class back up to 60% of the total. In some circumstances, you might also sell some investments that have appreciated in value to move the money into the lagging investment category. In this case, however, you may find that there’s a fee for moving out of these fixed income accounts that you’d prefer not to pay.
| A Hard Sell Reallocation can be a hard sell, because it seems wrong to move away from an investment class that’s doing well into one that’s lagging. But remember the cyclical nature of the markets: what’s down today may be up tomorrow or the day after. And today’s star will go down for a time. You rebalance at least in part to benefit from the next upturn. |
|
