|
| When to Adjust Your
Portfolio: Regaining Your Balance |
| If a big kid hopped onto one end of a teeter-totter, it would send a small kid on the other end high into the air, feet dangling. Likewise, if one of the funds in your DC plan does extremely well and grows more than your other funds, it can throw your investment plan off balance. |
|
| That's why you want to rebalance the investments in your DC plan from time to time by selling off some of the funds that have done extremely well and using the cash to buy more of the funds that haven't done so well. |
|
| Rebalancing might seem odd at first. After all, why would you want to sell funds that have done great to buy losers? For three reasons: |
|
| 1) It forces you to buy low and sell high. When you sell a winning fund, you lock in your gains. When you buy a losing fund, you hope you're getting in while it's cheap. |
|
| 2) It reduces the amount of risk you're taking on. If more and more of your total portfolio winds up in one fund, you risk losing a lot should that fund stumble. |
|
| 3) It keeps your plan on track. Unless something major has changed, you want to stick with your original mix of funds, which you ideally settled on with certain goals in mind. |
|
| How often should you rebalance? A rough guideline is whenever your portfolio gets more than five percentage points out of whack. So, if you start with 75% of your money in stocks and it grows to 80% of your overall investment portfolio, you'd want to rebalance. Some investors prefer to wait for their portfolios to get a few more percentage points out of whack--and that's okay. But don't go past 10 percentage points if you want to keep your portfolio in balance. |
|
| Some investors like to look in on their portfolio every single day. But when it comes to rebalancing, there's no need to be so attentive. A check up once or twice a year is often enough to see if your portfolio has gotten out of kilter. |
|
|
> Home
> Glossary > Support |
|
|
|
|
|
|||
|
Questions & Answers | |
|
|
|
|
|
| Why would you want to rebalance your portfolio? | |||
|
|
|
|
|
|
|
|
