How To Rebalance Your Investment Portfolio: A Step-by-Step Guide
Written by
Chris Adam
Edited by
Rebekah Evans
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When you start a new job or classes at a new school, you initially lay out a plan for success. This could include setting milestones to hit at work after six months and one year or outlining the next few semesters of classes in school. As you progress, it’s always good to check-in with how you’re doing. You might need to adjust some work goals based on organizational changes or switch out some classes to better meet your goals.
If you have an investment portfolio, it’s very similar. In fact, rebalancing your portfolio means taking a look at where you are and selling certain assets to reach where you want to be with your investments.
According to Forbes, “Through rebalancing, you can keep the risk level of your portfolio consistent and perhaps even enhance your returns.”
Here are three steps you can take to rebalance your investments. Also see these tips to simplify your portfolio.
Step 1: Plan To Rebalance
The first step involves planning. How often you rebalance is a personal choice — you could do it quarterly, twice a year or another interval that makes sense for you. Other investors do it based on when the portfolio becomes clearly unbalanced.
It is also important to keep in mind the tax implications of rebalancing. Explore options if you’re rebalancing a taxable brokerage account, especially when it comes to high-performing and highly taxed investments.
Step 2: Review Your Portfolio
Before you begin the second step, keep in mind these two reasons for why you should even rebalance in the first place: risk management and improved returns.
Next, look over everything and see where things may have gotten off track, away from your planned allocation and above your risk tolerance.
Step 3: Sell Where Necessary
According to Forbes, the next step is to “sell investments in asset classes that exceed the planned allocation to bring them in line.”
You then take those proceeds and invest in asset classes that are below the allocation you want. You also may be wondering about robo-advisors. Services that offer those and even some employer-sponsored retirement plans, can help you rebalance automatically, according to Forbes.
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