How to Rebalance Your Portfolio—and Your Life

Colleen Oakley
Posted

what to rebalanceSpring is just around the corner, and you probably have a to-do list a mile long: cleaning out the garage, purging your closet or attacking a yard that’s finally thawing from the long winter.

But while you’re tackling these spring-cleaning tasks, don’t forget about your finances! It may have been a few months since you received a customized plan from your LearnVest Planner or set a budget in the Money Center. There might be some new changes to account for, so it can be helpful to take a pulse on your money and figure out where you might need to consider rebalancing.

And we’re not just talking about your investments—although, of course, that might be important too. We’re also talking about those parts of your life that impact your money, like your career and your long-term goals. You may want to take stock of those areas the same way you would your portfolio, and there may be no better time for a fine-tuning than now.

Read on for guidance on how to rebalance a few key areas where your life and money intersect.

1. Your Portfolio

Here’s a big question people often ask about rebalancing their portfolios: Why even bother?

Just the way your car needs a wheel alignment from time to time so it doesn’t pull too much to one side, you also should kick the tires on your portfolio, so to speak, to figure out if your asset allocation still reflects what you want.

“Rebalancing a portfolio is a way to help systematize selling high and buying low, which is the goal when you’re investing to help maximize growth,” says Natalie Taylor, a Certified Financial Planner™ with LearnVest Planning Services. “But it’s hard to time that in the market—and get it right every time.” That’s why it can be important to regularly evaluate your portfolio. “You can shave a little money off areas that have done well—that’s selling high—and pop it into areas that may not have performed as well—buying low,” she says.

But unless you’re a day trader, checking your investments probably isn’t something you do constantly. Here are three approaches that can help remind you to stay on top of this financial task. Consider the following:

RELATED: How Do You Rebalance an Investment Portfolio?

Set a yearly calendar appointment to rebalance. The same way you may plan ahead for annual medical checkups, set a day far in advance. And once a year is a good rule of thumb to consider as far as frequency goes, Taylor says. Well-known Princeton University economist Burton Malkiel found that rebalancing once a year over the past 15 years would have increased the average annual return of a portfolio invested in stocks and bonds by 1.5 percentage points. Compounded over time, that could mean a lot of money going toward retirement or another long-term investing goal you have.

Rebalance as your goals and timeline change. There are some instances when rebalancing more than once a year may make sense—for instance, if you’re just a couple of years away from retirement and will need to access your savings soon. But just don’t do it too often—you still need to find the “balance” in rebalance. Taylor doesn’t usually recommend rebalancing more than once every six months because there are always temporary fluctuations. “So you don’t want to make rebalancing decisions based on short-term noise,” she says. You should discuss strategies that might be right for you with your LearnVest Expert to decide what might be the best approach if the goals for your investment dollars change over time.