Tips for Re-Balancing Your Portfolio

Tips for Re-Balancing Your Portfolio
Eileen St. Pierre, The Everyday Financial Planner

bull & bear on seesawOne of my New Year’s resolutions is done. I’ve finally re-balanced my retirement portfolio after neglecting it for a couple of years. It’s hard to sell stock when the market is going up but it is important to keep your portfolio within an appropriate risk level. Mine was really getting out of whack.

Here are some tips for re-balancing your portfolio:

You can time when you make the adjustment.

First, I definitely wanted to wait until the new year so I would get all those year-end distributions. Since my portfolio changes would be made after the market close, I watched the stock market for a few days. On Friday, 1/6 the stock market was showing some strong gains so that was when I put in my order to transfer some money out of my stock account into fixed income accounts. Bonds have not been doing so well lately so I bought in at a good price. YES! I bought low and sold high.

Just do your transferring out of a few accounts.

Remember, it is your overall account allocation that counts. You do not need each individual account to adhere to your set asset allocation. If you have your retirement money spread between several different investment companies, just choose one to do the rebalancing. I’d pick the one that charges the lowest fees – a reason perhaps to consolidate your retirement accounts in one place? Then afterwards make sure your overall asset allocation is where you want it.

Target Date and Lifecyle funds automatically re-balance for you.

The nice thing about these funds is that you don’t have to worry about re-balancing. They typically re-balance every quarter. As you approach retirement, the fund gets safer. So every quarter your gains in riskier assets are captured and the profits are transferred to less risky assets. Then 7-10 years after the retirement date they fix the asset allocation for the remainder of your life.

  • These funds still have a very aggressive stock allocation so be careful.
  • I decided to move some retirement money into the Vanguard Target Retirement 2030 fund (VTHRX) but the asset allocation (currently 73% stock and 27% bonds) was still a little risky for me.
  • So I lowered the risk with the rest of my portfolio by making the move into bonds as I described above.

For minor adjustments, just change your future allocations.

Direct money transfers between accounts can produce large changes in your overall asset allocation. Some of you may not need to do this. Your portfolio may just need a little re-shaping. If this applies to you, just change your future allocation percentages. 

I’ll still continue to monitor my portfolio after this initial round of changes to see if further tweaking is required. Like the rest of you, I’m anxious to see what politically unfolds in the next few months.