Time to Re-balance Your Portfolio

Third quarter reports for retirement investments are beginning to arrive. Stock portions of portfolio’s are showing strong gains. Financial professionals are sounding uncomfortable, pointing out the climb can’t continue.

Management of investments is a habit that most individuals don’t practice. We don’t re-balance by taking a profit from the portion of our portfolio that has shown gains and buy into less expensive assets.

An analogy to the increase in stock values is to have the accelerator stick on your car and instead of 55 mph you are going 70 on a two lane road.  Your 55% allocation to stocks has grown to 70%. The growth is nice to see, but since your original plan was to invest 55% of your portfolio in stocks, it also means:

  • higher risk than originally planned, and
  • Potential for loss when market adjustments take place.

Re-balancing means fees for the sale and purchase of new assets. I’ve found some articles that recommend re-balancing only when there has been a 5% change. If you allocate 55% of your account to stocks and it grows to over 60%, then you’d want to consider reducing your risk back down to a comfortable level.

An option for individuals who don’t feel comfortable dealing with the allocations in their retirement funds is selecting a target date fund. It is designed to follow a glide path to a target retirement date that moves assets to more conservative funds when recovery time from adjustments is limited.

Joyce Lash

Joyce Lash

Joyce Lash is a Human Sciences Specialist in Family Finance who wants to keep you ahead of the curve on financial information.

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