Spring Cleaning Means Re-balancing Your Portfolio

Spring Cleaning Means Re-balancing Your Portfolio

One of the ways to take some emotion out of investing is to periodically rebalance your portfolio to some predetermined percentage for different asset classes. Some more sophisticated investors and money managers use a tool called “Investment Policy Statement” to define parameters for different asset classes. Those make up the slices of a pie.

I liken the need for rebalancing to slices of a pie that have shrunk or enlarged over time so that the slices do not resemble the original plan that was set for investments. Un-rebalanced portfolios have been worse performers in down markets according to several studies. The two years after the dot com bubble burst is a perfect example.

How often should an investor or family re-balance their portfolio? “That’s a good question,” my partner Anna Sergunina would say.

When investors can’t bring themselves to sell high and buy low in various asset classes, there are additional strategies that can be employed by investors and money managers. Here are a few to ponder, according to Christine Benz of Vanguard in a recent blog:

  • Re-direct new cash — into underweighted asset class(es)
  • Practice intra-asset class rebalancing — value vs. growth changes
  • Delegate — to target date fund or funds

At MainStreet Financial Planning , our goal is to review client portfolios twice a year and observe the maintenance of asset allocation within certain risk parameters. Those parameters are fluid as clients age and approach or enter retirement. Also, the ratio of US to Non-US assets and equities to fixed income are critical relationships that change slowly over time but can alter dramatically in up or down markets and need periodic review.

OK, so it’s spring folks. Time to take a look at how your portfolio is doing after we’ve just celebrated a 6-year bull market. Don’t procrastinate into the “woulda, coulda, shoulda” camp. We hope to see you soon.


Jim Ludwick
Jim Ludwick

Jim Ludwick is the founder of MainStreet Financial Planning. His varied education and life experiences have enabled him to apply his knowledge and experience into useful solutions for personal financial problems. His writing and broadcasting activities allow him to help many more than just individual clients. He loves a microphone.

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