Is it time to REBALANCE your investment portfolio?

When was the last time you looked at the Asset Allocation mix in your investment portfolio?

Posted by admin on 2016-01-20

When was the last time you looked at the Asset Allocation mix in your investment portfolio? If it has been a while, you should consider checking it to see if you are still achieving the return and risk objectives that fit your Investor Profile. If it is not, then perhaps it’s time to REBALANCE, and here 3 considerations before you do.

  1. Know what “Asset Allocation” really means. When you “Allocate” your “Assets” (investments) you’ve decided what part of your total investment portfolio money to invest into different “asset classes”. “Classes” means; Stocks, Bonds, Cash, etc. Typically these are “Allocated” as a percentage of your total investment portfolio. Your investments are likely already invested in these various “Asset Classes”, either directly, because you bought individual investments, and/or indirectly through an investment fund that invests in individual investments.
  2. Understand what it means to “Rebalance” your portfolio. To say a portfolio is “Balanced” is to say that the portfolio’s “asset class” percentages are in line with the original percentages set forth, which should match your investor profile. Over time, different assets grow at different rates, and at different levels of volatility / risk. This true, even for short periods of time. Because of this, your investment portfolio can become unaligned with both your desired Asset Allocation and your Investor Profile. The impact of this misalignment to your portfolio is compounded if an “Asset Class” type is particularly strong or particularly weak. Also, your investment goals and profile changes over time. The asset allocation you implemented when you were younger may not be right for you any longer. Although there is no official timeline to follow for when you should rebalance your investment portfolio, a good rule of thumb is to evaluate at least annually as an overall assessment of your financial plan. Generally, more aggressive “asset allocations” should be rebalanced more often than more conservative “asset allocations”.
  3. It’s valuable to understand the costs associated with shifting, or rebalancing, your investment portfolio assets. Although it’s unlikely, the potential commissions, and/or fees, could outweigh the benefits of a slight rebalance of “asset classes” in your investment portfolio.