Importance of Rebalancing Your Portfolio

I want to talk to you today about rebalancing your portfolio and how important that is.

Now rebalancing is short in short is adjusting the weightings of the investments that you have to make sure you’re not taking too much risk or too little risk.

Let me give you an example of that let’s say you started a couple years ago investing in stocks and bonds and you didn’t want to take too much risk in stock so you put 50 percent of your money in stocks and 50 of your money in bonds.

Well over the past few years stocks outperform bonds so it’s very likely that that weighting of 50 50 is all out of whack. Now you might have 80 percent stocks now and just 20 bonds now a lot of people say what’s the problem with that stocks have done really well we’re riding the wave.

Well what you’re doing is you’re increasing risk in your portfolio and if mitigating risk is important to you you have to rebalance your portfolio so ideally what you would do is you would sell off some of those stocks to bring it down to that weighting of 50 50 if that’s indeed.

Where you want to be one of the problems is investments are always changing what was good last year might not be good this year and what’s going to be good next year might be a you know real stinker today so you always have to be managing that risk in your portfolio and one easy way to do that is to rebalance now for those of you out there that invest in a 401k

Most 401ks allow you to set up automatic rebalancing where they’ll do it for you now you can usually choose to have it done quarterly twice a year or annually you know it’s not really important necessarily which one of those you choose as much as making sure that you do ultimately rebalance your portfolio if you do that you will likely have a smoother ride less volatility and you’ll stick within your risk profile that’s the money-wise way to do it thanks for listening always remember to be smart be safe and be money-wise you

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