We could all use a little more balance, your retirement account is no different
As the markets change, the value of each security in your portfolio will increase or decrease at a different rate of return; changing the overall weightings of your investments. Periodic reviews of your investment portfolio help keep your retirement strategy on track.
When you’re making regular contributions to an employer-sponsored retirement plan or other personal investments, hopefully, you’ve divided up percentages of your investment assets into different asset classes such as stocks, bonds and cash. Investment elections are part of an asset allocation strategy that is meant to meet your risk tolerance and your future financial goals.
During times of market fluctuations, the value of your assets will increase or decrease and the rate of return will change the balance of your original elections. The result is asset allocations that may no longer match your risk or long-term goals. It may be time to rebalance your portfolio.
Rebalancing means adjusting your holdings — that is, buying and selling certain stocks, funds, or other securities — to maintain your established asset allocation percentages and remain consistent. Finding that balance helps maintain your original allocated selections while keeping your tolerance for risk at its most comfortable level.
Whether there is market volatility or not, it’s a good idea to review the value of your investments regularly so you can know if you need to rebalance at all. This will help you stay balanced and stomach the changes within your timeline for retirement. Some plans offer auto rebalancing and this could help you find your balance and sense of well-being while investing.
When you gain asset value, it’s great, however, as your investment increased it moved away from your original strategy. You may find for example, your portfolio is now weighted more heavily in stocks, which may expose you to more risk than intended. At this point, by selling some of the stock and investing those profits into bonds or cash, will redistribute the weight and rebalance your portfolio.
Remember, rebalancing doesn’t ensure a profit or protect against a loss in a declining market, but it will help you stick to a strategy that you believe is appropriate for you when markets shift or if your goals change so you can retire well.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. Please consult an independent legal or financial advisor for specific advice about your individual situation.