Q. My investments have done well, mostly, and my asset allocation isn’t what it should be because some areas have skyrocketed. How often should I rebalance?
A. Lots of investors saw their 401(k)s perform awfully well last year.
And you’re right, rebalancing is important.
The purpose of rebalancing is to realign the weightings of different asset classes to their intended allocation, said Alison Hall, a certified financial planner with Stonegate Wealth Management in Oakland.
She said rebalancing on a set schedule isn’t necessarily the best strategy.
“Many advisors rebalance quarterly or semi-annually,” Hall said. “We believe that rebalancing based on when asset classes stray from their base allocation is best. It ensures you are selling high and buying low.”
Hall offered this example: Let’s say a portfolio’s target allocation is 50 percent stocks and 50 percent bonds. Because of positive market performance, the stocks in the portfolio have increased in value, making the current allocation 60 percent stocks and 40 percent bonds.
“To rebalance would be to sell 10 percent of the portfolio’s stock holdings and purchase that same amount in bonds – resetting the portfolio to its base allocation of 50/50,” she said.
Good luck with your investments!
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