Have You Rebalanced Your Portfolio Lately?

Have You Rebalanced Your Portfolio Lately? by Jeff Holland{2:30 minutes to read} Maintaining a healthy balance is important in many areas of life; you constantly monitor and make ongoing adjustments to your monthly finances, your health, etc. But did you know it’s just as important to maintain balance & consistency in your investment portfolio?

This adjustment is called “rebalancing.” Some people call it “pruning.” Just as you might prune a tree, you also need to prune off some of the returns of a high-performing fund, then plant some more seeds in the ones that have done less well over the last year.

Markets are always changing; this year, the US performed very well and the international markets didn’t fare as well. If you don’t rebalance, then your risk profile increases.  Rebalancing maintains a constant risk exposure to global equities. Over a 35-year run, for example, you will see similar returns of domestic and international companies. But, as we discussed before, you don’t collect that in advance, so you want consistent exposure to these structured assets globally.

The whole game of investing is to get paid for the risk you take. If you don’t rebalance, then you take on excess risk in the market, which you’re not getting paid for—uncompensated risk.

If you have a blend of international and US indexes, you’ll want to maintain that blend. For example, if you have 10% US and 10% international, we want to try to return to your target percentage exposure to international indexes.

And if you have 10 different investment vehicles matching different parts of the world, including the US, we want consistent exposure to get the returns expected by the market—constant risk exposure to global equities.

It can be emotionally difficult to rebalance portfolios, because it means buying losers and selling winners, which seems counterintuitive. But it’s actually very important for the long-term growth and success of your portfolio.

Since this is something many people neither think to do on their own nor know the best way to accomplish, it’s best to consult a professional.

Visit our website for further information.

Jeff Holland

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