Performance of stocks, bonds and other assets varies. That can drive the actual allocation of your portfolio away from your target – and cause you to take too much or too little risk. Here’s how rebalancing can bring it back to your target allocation.
Asset allocation is about dividing your portfolio among various investment asset classes like stocks, bonds and cash, and sub-asset classes like small, large and midcap stocks. Bonds and international investments, as well as growth and value oriented equities are often part of a well-diversified portfolio.
Your portfolio should be reviewed periodically to see if rebalancing is needed. This should be done at least annually, more often such as semiannually or quarterly if appropriate.Maintaining the proper level of portfolio risk None of us are smarter than the markets. It’s not different this time. Reviewing your portfolio for rebalancing at regular, set intervals can help avoid the temptation to think you are smarter than the market. You aren’t.While it is not desirable for long-term investors to look at their investments daily, they should review their portfolios at regular defined intervals. This can go hand-in-hand with a regular rebalancing regimen.
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