Rebalancing your investment portfolio is something that most people forget about, never get to, or simply ignore when markets are good. Periodic or strategic rebalancing re-balancing can be a very effective risk management technique. Let’s take a simple example. If your target allocation is 60% US stocks and 40% US bonds and the markets performed like they have thus far in 2013, that 60% allocation would now be 66% and the 40% bond allocation dropped to 34%. Overall, a very solid 13% gain – probably quite typical for many investors this year. So, why monkey with a good thing? Because you need to monitor risk in your portfolio and adjust from time-to-time!
So, maybe it’s time to consider selling the 6% stock gain and buy the 6% bond loss (ie sell high, buy low!) to bring things back in balance. But, be careful! If you are re-balancing a non-retirement account, you could incur capital gains taxes on the gain which could range from 0% to 20% depending on your tax bracket. And, for those who like riding the wave of a good market and choose to ignore rebalancing because everything is good right now, don’t forget what happened in 2008/2009! The world wished they had rebalanced in 2007. We’re not trying to be negative, but, we’ve been around long enough to know waves eventually crash on the beach.
Get the latest blog posts conveniently delivered to your email.
By submitting this form, you are consenting to receive marketing emails from: Addis Hill, Inc., 200 W. LANCASTER AVE, WAYNE, PA, 19087, https://addishill.com. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email.