The mix of assets chosen for your portfolio should reflect your goals and the level of investment risk you are willing to take to reach them. But fluctuations in the securities markets can change a portfolio's allocation over time, exposing it to more or less risk than intended and leaving it less diversified.
Rebalancing is an essential step in the investing process. A review of your investment mix at least annually can reveal if your intended allocation has changed. Unless your risk tolerance or your goals have also changed, rebalancing may be in order.
Rebalancing can be accomplished by implementing one or more of the following strategies: Selling some investments that have increased in value; Directing new contributions to the asset class or classes that are lagging; Directing future earnings (e.g., dividends) into investments that have dropped in value. Buying and selling investments may have transaction expenses and tax consequences, so excessive rebalancing should be avoided.
Other Reasons to Rebalance
Major life changes may warrant taking a close look at your investments.
Marriage: You and your spouse may have duplicate investments that you want to eliminate, or you may wish to assess the amount of risk you are taking.
Children: Having a family may add college and other expenses to your savings goals and change your feelings about risk.
Retirement: Rebalancing your portfolio to include more conservative investments and to preserve gains is generally a wise move as you near retirement.
We can help you reach your investment, retirement, and estate planning goals. Call us at 866.238.0082.