05 Nov My portfolio is gaining so I don’t want to rebalance. Is that okay?

Q. I’m reviewing my portfolio and because my investments have done well, it doesn’t have the right asset allocation and is actually a little riskier. But I’m feeling confident in future gains and I don’t really want to sell these investments that have really done well. Is there anything wrong with theoretically taking on more risk by not rebalancing?
— Investor

A. Yes.

As it seems you know, it’s important to rebalance to make sure your asset allocation doesn’t get out of whack.

That stands whether your portfolio has made or lost money.

You may feel you might be missing out on gains if you go back to your initial asset allocation by rebalancing your portfolio, but that’s the point. Not rebalancing will change your portfolio so you’ll have a different risk profile than you initially planned. And that could create different risks for you.

Selling doesn’t mean you’re losing out.

“The answer is we are only selling the amount that has appreciated on a relative basis to other assets,” said Victor Cannillo, founder of Baron Financial Group in Fair Lawn. “We remain invested in the investment based on the original percentage identified in the plan.”

He said rebalancing, which means selling or buying to stick to your original asset allocation plan, “facilitates the capture of the gain before the asset class experiences a correction.”

“Because no one can consistently and successfully time the market, allowing your investments to be overexposed because they are appreciating, in order to ride the wave – is a risk, we believe no long-term investor should take,” Canillo said.

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This story was originally published on Nov. 5, 2021.

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