Mark D. from Cedar Falls, IA asks: Hi Mitch, I consider myself to be a long-term investor. I diversify and don’t try to get too caught up in trends or fads. My gut is telling me not to make any changes to my portfolio after two strong years. Would you agree that the outlook calls for a “set and forget” approach?
Mitch’s Response:
Thanks for writing, Mark. I appreciate your characterization of being a long-term investor – it’s great to hear. It is almost always in an investor’s best interest to determine an asset allocation that will help you achieve your long-term goals and cash flow needs and then stick to it long-term unless your objectives change.1
Assuming that your current diversified approach is appropriate relative to your objectives and risk tolerance, I would say yes—you should stick with it in 2025. But there’s an important piece of advice that applies in the new year: don’t forget to rebalance your portfolio to ensure your portfolio aligns with your target allocation.
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As you point out in your question, markets delivered strong performance in 2023 and 2024. The S&P 500’s 53% gain over that period has only been rivaled by gangbusters performance in 1997 and 1998, which interestingly enough was also driven by technological innovation. In 2024, bond performance lagged far behind, with U.S. bonds returning only 1% as per the Bloomberg U.S. Aggregate Bond Index.
Zooming in, there was also plenty of performance dispersion across, size (small vs. mid vs. large), style (value vs. growth), and region (U.S. vs. foreign). Depending on how you are positioned across equities, it’s almost certain that relative performance across these categories has altered your portfolio’s weightings relative to where you started in 2023 and/or 2024.
For many investors—particularly those with portfolios diversified across stocks and bonds—this could mean being overweight certain asset classes or equity categories relative to a target allocation, which by extension may mean the portfolio’s risk profile is out of balance. The takeaway here is that I would recommend rebalancing your portfolio to bring your asset allocation back in line with targets determined by your objectives.
Now is the time to act. If your portfolio is out of balance, rebalancing isn’t optional—it’s crucial. Aligning your portfolio with your long-term strategy will give you the stability and growth needed to achieve your financial goals and protect your wealth, no matter what the market does.
If you’re serious about securing your financial future, download our free guide, 7 Secrets to Building the Ultimate DIY Retirement Portfolio3, and get the tools you need to take control of your retirement.
- How to accurately establish your retirement income needs
- The two phases of determining your asset allocation
- Developing an investment discipline that allows you to get good results over time
- Investing rules to help you avoid self-sabotage
- Plus, our views on key steps to create and maintain the ultimate retirement portfolio
If you have $500,000 or more to invest, download your free guide today!
Disclosure
1 Wall Street Journal. January 3, 2024. https://www.cnbc.com/2025/01/03/how-to-rebalance-your-portfolio-after-lofty-stock-returns-in-2024.html
2 ZIM may amend or rescind the “7 Secrets to Building Your Ultimate Retirement Portfolio.” guide for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the “7 Secrets to Building Your Ultimate Retirement Portfolio.” guide for any reason and at ZIM’s discretion.
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