James Mayer Jr.:

Over time, the ups and downs of the markets can change the profile of your investment plan, leaving you with either more risk or less growth potential than you originally intended. Today, we'll discuss two methods of rebalancing your asset allocation to ensure your plans remained aligned to your goals and risk tolerance.

First off, what is rebalancing? The centerpiece of your investment plan is your asset allocation, the mix of stocks, bonds, and cash in your portfolio. The allocation you choose depends on your unique situation, taking into account your age, time horizon, goals, risk tolerance, and much more. While your target allocation stays constant, your actual allocation does not. This is why you may consider rebalancing.

There are two main methods for determining when to rebalance, periodic rebalancing and comfort level rebalancing. Whichever method you choose, the important thing about rebalancing your portfolio isn't necessarily how you do it, but rather your commitment to sticking with the method you choose.

The periodic rebalancing approach is relatively simple. With this method, you choose a reoccurring date on your calendar when you'll analyze your investment holdings and adjust your allocations, but only if necessary. Keep in mind, just because you choose to review your allocation on that date doesn't mean you will choose to rebalance. In fact, rebalancing your portfolio too often can potentially be counterproductive.

Comfort level rebalancing focuses more on a threshold as a means of determining whether to rebalance. Instead of choosing a set time to rebalance, you do so when your asset allocation changes by a specific percentage or a threshold of change. This means you only consider rebalancing when a particular asset class crosses a predetermined line of how over or under weighted it has become based on your goals.

I may mention there's also an automatic rebalancing, like what takes place when you periodically contribute to your 401k plan.

Rebalancing your portfolio when necessary can help you focus on the big picture. Keep your goals and risk tolerance at the forefront of your investment strategy. Send us an email or give us a call and we can review your plan to determine if rebalancing makes sense for you. Thank you for your time. Please stay safe, stay healthy, and hopefully we'll see you soon.