Why bother rebalancing?

Financial security planning is a process, and developing a properly allocated portfolio is the first step in proper risk management. Many individuals who work with a financial security and investment representative understand the importance of building a properly allocated portfolio. Less well appreciated is the importance of rebalancing this portfolio.

Rebalancing is important for two reasons

There are really two ways to understand rebalancing. The first is as a way to reduce the ups and downs in your investments; the second is as a discipline of taking profits from investments that have performed better than others and using these profits to purchase others that may be at the opposite end of their valuation cycle.

It may protect your investments from ups and downs

The tendency for a portfolio to change over time is sometimes referred to as “risk creep” or “policy drift.” Growth investments are often recommended as a way to enhance overall return. When they live up to expectations, they can begin to represent a greater percentage of your portfolio. This can increase ups and downs, as your portfolio becomes more vulnerable to swings in the value of specific investment classes. As this volatility increases, so can your unease. Rebalancing continually brings your portfolio back into proper allocation – ensuring your holdings reflect your feelings about risk and return.

It can provide a disciplined approach to taking profits

Investors who rebalance regularly not only reduce volatility - they may be actively taking profits from well-performing assets. The act of regularly selling assets that have done well represents a discipline of profit taking. Rebalancing means you actually sell high, and buy low – the very thing most of us plan on doing when we start investing. The fact that buying and selling happens at regular intervals means that there is no need to time the market. Profit-taking happens consistently over time.

Regular rebalancing is a good reason to consolidate your investments

Investors who get advice from a single financial security and investment representative are much more likely to benefit from consistent rebalancing. Looking at all your investments together can provide a clearer picture to help you meet your long-term goals. It also means you can avoid exposing yourself to unnecessary ups and downs by rebalancing all of your investments together.

If you have investments that have not been rebalanced recently, speak to your financial security and investment representative. He or she can evaluate your overall situation and integrate these investments into your plans and rebalancing arrangements.


This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.