This week I’m talking about how to rebalance your investment portfolio. Rebalancing is the process of realigning your portfolio back to its intended position. We all get a little out of whack sometimes in all areas of life, but when it comes to your investment portfolio, I can’t emphasize enough how important it is to bring things back into alignment when it gets out of whack. 

Yesterday, I shared with you how to review your current mix of stocks, bonds, and cash to determine whether or not it’s time to rebalance. 

Today, I’m sharing with you step #2 on how I rebalance portfolios (which I have done literally thousands of times), and how you can follow this same process for rebalancing your own portfolio.

Step #2 for rebalancing your portfolio is comparing your current allocation to the ideal allocation you have established for your portfolio to see if it’s time to rebalance. You may look at your investment portfolio 2-4 times a year and rebalance only once or not at all. And that’s fine. 

But when it’s time to rebalance, we need to be able to pull the trigger, and here’s how you do it. My rule for rebalancing is that I rebalance each time a client’s portfolio gets out of whack by 5% or more. So if your portfolio should be 60% in stocks, but because of growth in stocks in your portfolio, you’re now at 65% in stocks, it’s time to rebalance. 

You may have a different rule for when you rebalance, and that’s fine. It’s not unusual that people will rebalance sooner than 5% or by a completely different trigger all-together, like every 6 months, no matter what. I personally like 5%. It’s worked well for me over the years. It rebalances often enough to be meaningful, but not so frequently where it’s starting to create a tax problem by constantly generating capital gains from selling. 

In a $500,000 investment portfolio, I need to reduce the stocks in the portfolio by about $25,000 to get the portfolio back down to its 60% target. Now that we know our portfolio is out of balance, and how much needs to be sold from the stock side of the aisle to get the portfolio back in line, we can move on to step 3, which is determining what to sell. I’ll be covering that, tomorrow.

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Hey, thanks rcaprice! I didn’t realize this was a political show, but we all hear what we want to hear, right? So whether you have a 1 star review and think I’m overly political like rcaprice, or if these tips are valuable for you and you think it’s worth 5 stars, or anywhere in between, please leave an honest review for the One Minute Retirement Tip in Amazon or iTunes. It helps to spread the word, and helps other people find this podcast. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the One Minute Retirement Tip.

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