How to Rebalance Your Portfolio—and Your Life

How to Rebalance Your Portfolio—and Your Life

Spring 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. 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.

Rebalance when your asset allocation gets too skewed. For those who do track their investments often, you could choose to rebalance whenever certain assets in your portfolio have shifted too far from your original allocation. For example, say you want to maintain an allocation of 30% in large-cap stocks and 5% in small-caps, but you'll accept a deviation of up to 5%. Because of market shifts, a year later that asset makeup has become about 35% in large-caps and almost nothing in small-caps. You could sell off that extra 5% in the large-cap portion, and reinvest that money back into small-caps to go back to your original asset allocation.

Taylor suggests however, that, depending on your financial situation, your threshold for deviation should probably stay around 5% to avoid simply reacting to normal fluctuations caused by the market.

Whichever method you choose, just resist the temptation to set it and forget it. Take a lesson from the recession: The New York Times reports that more than one out of five 401(k) investors aged 56 to 65 had more than 90% of their retirement money in stocks just before the market tanked in 2008. The presumption is that these investors had an allocation presumed to be risky because they didn’t rebalance.

RELATED: 5 Times When You Should Recalculate Your Investment Game Plan

And remember that your asset allocations still should reflect your comfort with risk. If you’re unsure of the right asset mix for you, talk to your LearnVest Planner about how to weigh each of these approaches as you decide how to rebalance.

2. Your Career

According to a 2013 Gallup poll, about 70% of employees are either not engaged or actively disengaged from their jobs—not the most encouraging statistic for the state of the American workplace. But whether you hate your job, love your job, or are actively on the hunt, it can be a good idea to take a step back once a year and see where you are on your career ladder—and how you can work on improving your position by this time next year. Career coach Dr. Colleen Georges offers some tips:

Learn from your performance review. Typically, no one likes them (really, a recent Kansas State University study found that nearly everyone reacts negatively to criticism during a performance review, even when they love their job). Still, a yearly review can turn into a growth opportunity. “Even if you receive a mostly poor review, don’t dwell on the negative,” says Georges. “Remind yourself of any positive feedback you received, as well as accolades you have gotten from clients and customers, colleagues, or managers in the past.”

Then, ask your supervisor for a new project that will help you strengthen your weak spots. “If your employer sees that you can handle difficult feedback and use it to grow," says Georges, "you may be likely to gain greater respect and possibly receive a better review the following year. It may also lead to projects with greater responsibility, and ultimately promotions or a better title and salary.”

RELATED: 10 Apps That Could Supercharge Your Career

Give yourself a performance review. Take a minute to think about what you’ve accomplished in the past year. “Consider times when you’ve particularly enjoyed your work, what your most rewarding work relationships are, and what ways the work contributes to you, your family, your company, your community and the world overall,” says Georges.

Then ask yourself: What small changes can I make to my job to make it more enjoyable on a regular basis? For instance, if you tend to work independently and find that you enjoyed your job the most when you were working with others, suggest to your boss that you’d like to be involved in more team projects.

Identify your strengths. A recent study in The Journal of Positive Psychology found that people who utilize their strengths at work have greater job satisfaction. So take some time to list your greatest assets and talents. Not sure what they might be? Try one of these assessments: VIA Inventory of Strengths or Gallup's StrengthsFinder. “Then, select one of your top five strengths and apply it at work in a variety of situations over the course of a week,” she says.

For example, if you love problem solving, consider asking your supervisor if you could work on a side project to fix something that you’ve noticed is broken in your workplace. Maybe there’s a process that takes an unnecessarily long time, there’s constant miscommunication between departments, or a product isn’t selling well and you might have a hunch why. Not only are you working on making yourself happier at work, you may also be making it obvious to your manager that you’re engaged in your job.

RELATED: 3 Ways to Tell You Need a Career Change

Update your résumé—even if you’re not on the hunt. It’s always good to keep an updated résumé and cover letter, even if you have no plans to leave, because you never know when an opportunity will come along. “Throughout the year, as you take on new responsibilities and achieve successes at work, always keep a running document to track these achievements,” Georges says. “Then use them to update your resume and social media profiles once a year, or as needed.” These new skills could be what lands you your next dream job—and dream paycheck.

3. Your Family Budget

Spring is a good time to have an annual family budget meeting, because that’s when summer planning kicks into high gear. “For us, spring is when we confirm plans for summer camps and vacation based on how we've met our savings goals so far for the year,” says Gina Lincicum, founder of MoneywiseMoms. It also helps that it’s the tail end of tax season, she says, because you’ve probably just reviewed the year’s income and anything you’ve learned can be used to plan ahead for the following year.

If you’re not reviewing your budget at least once a year, here’s why you should consider doing so: “Small changes occur every year whether you like them or not,” says Lincicum. “Home and car insurance prices go up, medical expenses go up and food prices increase.” It's also important to review your contributions to savings accounts for retirement, college planning, vacations or other family goals that can be affected by both small and big life changes.

RELATED: Your Ultimate Budget Guideline: The 50/20/30 Rule

According to Lincicum, these are the line items you should be scrutinizing in order to figure out where you might be able to clean financial house.

Your cable and internet bill. Are you eligible for any discounts, or can you sign a new contract to get a lower rate?

Any non-essential recurring charges. Are you actually getting good use from your gym membership, Netflix or Cheese of the Month club? “Consider the value you're getting compared to other ways to use those funds,” says Lincicum. “Sometimes this money is just slipping away, as it's often automatically charged to a credit card, so you don't see or feel it.”

Look over your grocery and other household expenses. Did you meet your monthly or weekly budget for these costs? Why or why not? Does the amount need to be higher—or could you do anything to save more?

Check your credit report. As required by law, you get one free credit report from each of the three big credit-reporting agencies once a year. “Make sure you look over it carefully for errors and inaccuracies,” says Lincicum.

Reset budget categories that tend to increase. “Most often for us, these include homeowners’ association fees, car insurance and food—three growing kids consume more each year,” says Lincicum.

Readjust payroll withholdings based on your tax bill or refund. You want this number to be as close to zero as possible, because you obviously don’t want to owe more money next year—but you also, contrary to popular belief, don’t want to get a big refund. “Many people—my husband and I included—don't use their big tax refund for anything smart, like paying off debt, contributing to retirement or saving it. We saw it as a ‘bonus,’ and often spent it on a trip, furniture or other fun stuff,” says Linicum. “But now, by having that number close to zero, we’re in charge of all of our money throughout the year.” You’re also potentially missing out on growth had you taken the time to invest that money over the year, rather than as an annual lump sum.

If you do receive a refund, a good rule of thumb to consider is to put 10% toward a splurge if you can afford it, like a day at the beach for the whole family, and putting 90% toward your financial priorities, such as paying down credit card debt or beefing up your retirement savings. That way, you get to both enjoy the windfall and be responsible with it.

RELATED: A Wise Guide to Windfalls

If you need help getting your withholding number right, your accountant can help, or you can use the IRS’ withholding calculator to estimate the right number.

Your emergency savings. It’s important to have a cushion for emergencies no matter how else your budget changes, because you can’t plan for an emergency. “We set aside small amounts each month in categories like ‘car’ and ‘home repairs,’ so that when our old refrigerator finally goes out, we'll be ready for it,” says Lincicum. “The car funds aren't used some months, so when the expensive 30,000-mile service rolls around, the money is there.”

A good goal to strive for is to have six months’ worth of your take-home pay stashed away for emergencies. Of course, that also depends on your situation. If you're self-employed, for example, you may want to keep as much as nine months' worth; if you're single and don't have to take care of anyone else, you may not need a full six months. If you're not sure what a good ballpark is for your emergency savings, check in with your LearnVest Planner to discuss the details.

RELATED: The 3 Times I Used My Emergency Fund: Was I Right to Dip Into It?

4. Retirement Goals

It may sound weird to say you should “rebalance” your vision for retirement, but every so often it’s a good idea to think about what goals you want for your life after work, even if it's 20, 30 or 40 years away. That way, you also know if you should consider shifting the savings strategy that will eventually fund your future life.

“An annual audit of your retirement goals keeps you on track to assure you're maximizing your personal potential,” says Dr. Joan D. Lampert, senior career consultant at New Directions, a career development firm in Boston. “Our goals, values and preferences are constantly changing, even as we age. The world around us evolves, and we do too.”

In other words, a few years ago a retirement spent in a lakeside cabin may have seemed ideal to you. But now you may want to keep working as a consultant or open a small business. If so, you’re not alone: according to a 2013 Merrill Lynch study on retirement, 71% of respondents say they plan to work at least part of the time in retirement. Only 29% say they never want to work again.

To help you reassess your retirement goals, here are four questions Lampert suggests asking yourself:

  1. What's the top five on my “bucket list” for retirement? How will I accomplish these objectives, and what's my timeline for each?
  2. Imagine: If money were not a concern, what would I do, create, buy?
  3. What personal values are critical to me? Is it learning, community service, spirituality, etc.?
  4. How well do my activities align with the things I care most about? How closely does my daily to-do list match up with these objectives I’ve picked out for myself?

RELATED: How I Rebooted My Retirement Savings After 40

As you think about these goals and values, you want to make sure you’ll be on financial track to meet them. There are a lot of great retirement calculators on the internet, but you can also work with your LearnVest Planner to estimate how much you need, and what financial steps you might take to help get there.

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.


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