This week is all about rebalancing your portfolio. Rebalancing is the process of realigning your portfolio back to its intended position. We all get a little out of whack sometimes, so this week I’ve been walking you through the process of rebalancing an investment portfolio, which I have literally done thousands of times. 

Today, I am sharing with you 3 quick bonus tips to help you be a better rebalancer. 

Tip #1 - Rebalance based on triggers. Some people out there will tell you to rebalance at least once a year or twice a year, but I don’t like a calendar based approach. I believe it’s way more effective to pick a trigger and stick with it. Personally, my favorite trigger that’s worked well over the years is the 5% rule for the overall portfolio. Whenever the portfolio allocation to stocks gets out of balance by 5% or more, that’s when it’s time to rebalance. So consider a trigger if you’re going to rebalance manually. 

Tip #2 - Set up an auto-pilot approach to rebalancing. If you have access to target date retirement funds through your 401k account at work, you can let a professional take care of the rebalancing for you. Target date retirement funds are like an auto-pilot approach to investing in your 401k plan because all the rebalancing is done for you. 

Tip #3 is rebalancing with new money. This tip applies if you are making regular contributions to your account or if you have new funds to invest, like an inheritance. Rather than rebalancing your current portfolio, you would just add the new funds to something more conservative. This works well if you have large gains in a taxable account and are reluctant to sell what you own to pay the taxes. Instead, you could divert future contributions to a more conservative bond investment, rather than selling what you currently own to rebalance. 

That’s it for today. Thanks for listening. Tomorrow, we’re going to recap the week and I’m going to give you a little preview of next week’s theme. 

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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