Why You Should
Rebalance Your Portfolio
months of market ups and downs, it is easy for your mix of
stocks, bonds and other types of investments to stray from
your target allocation.
When your portfolio strays too
far, returning to your target allocation - a process know
as rebalancing - can help control risk and keep your
investment plan on track. For example, say your target
35% bonds, and
(see graphic at right).
If stocks have recently
outperformed bonds, your actual stock allocation may be closer
to 70%. A greater percentage of stocks means that your
portfolio is now more volitale - prone to wider swings in
value - and has a higher level of risk than you originally
Conversely, if bonds have
outperformed stocks, your portfolio may now be too
conservatively invested to potentially reach your financial
goals. There are two main ways to rebalance.
can sell some shares in the overweighted asset
class and invest the proceeds in the underweighted asset
Or you can invest new money,
either in a lump sum or over time, in the underweighted
If you decide to sell shares,
pleased remember that while you can sell shares without tax
repercussions in a tax-favored account, such as a 401(k) or an
IRA, selling share in a taxable account will generate
either taxable gains or losses.
You are always welcome to talk
to me about when and how to rebalance. I offer a Free
Portfolio Analysis (see box at right). Call me at
925-634-2344 to get yours started.
NOTE: Asset allocation does not ensure a profit
or protect against loss in declining markets?
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