Show Notes
What does rebalancing your portfolio mean? Who should do it, and how often?
In this short Finance Moment episode, Associate Financial Planner Ryan Simpson answers these questions and shares why rebalancing your portfolio is an important component of managing investments.
Rebalancing is critical to maintaining your desired asset allocation:
- Risk tolerance
- Time horizon
- Aligning investments with financial goals over time
Two types of rebalances to focus on:
- Shifting asset allocation to better align with your goals
- Example of client in wealth accumulation phase vs. income generation
- The planning team may recommend adjusting allocation to better fit your needs
- The second type of rebalancing involves maintaining your current allocation
- Should be performed at least annually, quarterly at SS with close attention to cap gains
- Asset classes naturally shift over time due to over/under performance
- Use example of 60/40 portfolio moving to 65/35 and becoming out of balance
- Could cause the client to face more risk that they are comfortable with or that is needed
- To rebalance we would sell 5% of the equity and move those proceeds to the fixed income portion
Benefits:
- Not only does this get the portfolio back in line with your risk tolerance but it also locks in gains
- Follows age old adage of buy low / sell high without intentionally trying to time the market
- Takes the emotion out of investing my following a systematic schedule over time
Summary:
- Rebalancing your portfolios helps to keep your investments aligned with your unique goals and time horizon and takes the emotion out of investing by systematically realigning your portfolio to naturally take advantage of market fluctuations.