{"id":9731,"date":"2021-07-22T15:00:41","date_gmt":"2021-07-22T15:00:41","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9731"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"why-every-investor-should-rebalance-their-portfolio-each-year","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/why-every-investor-should-rebalance-their-portfolio-each-year\/","title":{"rendered":"Why Every Investor Should Rebalance Their Portfolio Each Year"},"content":{"rendered":"\n

Michaela C. from Lexington, KY asks: <\/em>Hello Mitch, my\nquestion is in regards to portfolio rebalancing. How often do you recommend\ninvestors rebalance, if at all, and what is the best way to approach it?<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thanks for writing, Michaela. Portfolio rebalancing is a\nvery important feature of smart investment management, in my view, and I think\nit is a key undertaking for most investors. It\u2019s great that you\u2019re giving this\ntopic some thought.<\/p>\n\n\n\n

For readers who may not be familiar with the term rebalancing,\nit generally refers to the process of keeping an investment portfolio aligned\nwith the desired asset allocation. For example, if the optimal asset allocation\nfor your long-term objectives is 60% stocks and 40% bonds, rebalancing would\nmean keeping those percentages roughly intact. If in a given year stocks soar\nand bonds lag, your investment portfolio may wind up say 68% in stocks and 32%\nin bonds. Rebalancing would have you trim your stock holdings and buy bonds to\nget back to 60\/40.1<\/sup><\/p>\n\n\n\n

______________________________________________________________________<\/p>\n\n\n\n

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Having a lack of\nclarity about your investment goals could lead to much uncertainty and\nnervousness when it comes to building a solid retirement strategy. Just imagine\nworking hard to build up your retirement and then the market plunges. What\nhappens to your portfolio? Your assets? <\/p>\n\n\n\n

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Our free guide can\nhelp you prepare for what\u2019s to come! We think it\u2019s essential to build a\nretirement strategy that takes the \u201cwhat ifs\u201d into account. If you have\n$500,000 or more to invest, get our free guide, How Solid Is Your Retirement\nStrategy?<\/em> You\u2019ll get valuable and practical ideas to help build a\n\u201cweatherproof\u201d retirement strategy that can potentially protect your retirement\nfrom any storm that could threaten your financial security.<\/p>\n\n\n\n

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______________________________________________________________________<\/p>\n\n\n\n

For example, a person who five years ago invested in a\nportfolio of 60% global stocks and 40% bonds \u2013 but never rebalanced \u2013 would\ntoday have about 72% in stocks and 28% in bonds. For a retiree, that could mean\nhaving more equity exposure than is appropriate given risk tolerance, cash flow\nneeds, etc.<\/p>\n\n\n\n

According to Vanguard, only about half of investors\nregularly rebalance their portfolios \u2013 a figure I think should be closer to\n100%. Not only does rebalancing keep a portfolio aligned with a recommended\nasset allocation, but rebalancing also helps an investor buy low and sell high,\nas one is generally re-allocating capital from an outperforming stock or asset\nclass to an underperforming or neutral one.<\/p>\n\n\n\n

As far as the approach is concerned, I believe investors\nshould revisit their asset allocations at least once a year, to ensure your\ninvestment portfolio\/strategy is aligned with your goals, cash flow needs, risk\ntolerance, and time horizon. Once you determine the appropriate asset\nallocation, you can set about rebalancing and managing a portfolio to keep your\nequity and bond exposure in line. <\/p>\n\n\n\n

Various studies have shown that there is not a significant\ndifference in return for an investor who rebalances monthly versus quarterly or\nannually, so I tend to favor the time horizon of once per year \u2013 unless your\ngoals change. At Zacks Investment Management, we actively manage portfolios to\nensure our clients\u2019 recommended asset allocations align with their investment\nportfolio allocations, and we regularly have discussions to make sure our\nrecommended asset allocation is appropriate given a clients\u2019 goals and\nobjectives. In other words, working with us means not having to worry about\nwhether you are rebalancing correctly or often enough. <\/p>\n\n\n\n

In addition to managing a diversified portfolio that meets\nyour investment goals, we recommend that investors, especially those who are\nnearing retirement, start planning a retirement strategy that takes the \u201cwhat ifs\u201d\ninto account. The future of the market is uncertain, but never give in to the fear\nof what\u2019s to come. It\u2019s better to prepare for it! Our free guide can help you\nto prepare as you strive for long-term success.<\/p>\n\n\n\n

If you have $500,000 or more to invest, get our free guide, How\nSolid Is Your Retirement Strategy.3<\/sup><\/em> You\u2019ll get valuable and\npractical ideas to help build a \u201cweatherproof\u201d retirement strategy that can\npotentially protect your retirement nest egg from any storm that could threaten\nyour financial security.<\/p>\n","protected":false},"excerpt":{"rendered":"

Portfolio rebalancing helps ensure your investments stay aligned with your goals<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-9731","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9731","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9731"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9731\/revisions"}],"predecessor-version":[{"id":10351,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9731\/revisions\/10351"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9731"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9731"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9731"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}