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TIME TO REBALANCE?

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Rebalancing your investment portfolio is something that most people forget about, never get to, or simply ignore when markets are good.  Periodic or strategic rebalancing re-balancing can be a very effective risk management technique.  Let’s take a simple example.  If your target allocation is 60% US stocks and 40% US bonds and the markets performed like they have thus far in 2013, that 60% allocation would now be 66% and the 40% bond allocation dropped to 34%.  Overall, a very solid 13% gain – probably quite typical for many investors this year.  So, why monkey with a good thing?  Because you need to monitor risk in your portfolio and adjust from time-to-time!

So, maybe it’s time to consider selling the 6% stock gain and buy the 6% bond loss (ie sell high, buy low!) to bring things back in balance. But, be careful!  If you are re-balancing a non-retirement account, you could incur capital gains taxes on the gain which could range from 0% to 20% depending on your tax bracket.  And, for those who like riding the wave of a good market and choose to ignore rebalancing because everything is good right now, don’t forget what happened in 2008/2009!  The world wished they had rebalanced in 2007.  We’re not trying to be negative, but, we’ve been around long enough to know waves eventually crash on the beach.

 

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