Lofty stock returns and muted bond growth may mean investors need to rebalance their allocations to bring them back to target.Congratulations! After taking a victory lap, it may be time to adjust your portfolio — because those heady returns likely threw your investment allocations out of whack. The S&P 500, a stock index of the largest public U.S. companies by market capitalization, gained 23% in 2024. Cumulative S&P 500 returns over the past two years (53%) were the best since 1997 and 1998.
Long-term investors generally have a target allocation of stocks to bonds — say, 60% stocks and 40% bonds. But lofty returns for stocks relative to muted ones for bonds may mean your portfolio holdings are out of that alignment, and Rebalancing brings a portfolio in line with investors' long-term goals, ensuring they aren't over or underweighted 'inappropriately' in one particular asset class, said Ted Jenkin, a certified financial planner based in Atlanta and member of CNBC's 'Every car should get an alignment check in the beginning of the year and this is nothing different with your investment portfolio,' said Jenkin, co-founder of oXYGen Financial.Let's say your initial portfolio has an 80/20 mix of stocks to bonds. After a year of market fluctuations, the allocation has changed to 85% stocks and 15% bonds. To return the mix to 80/20, you can consider selling 5% of your stocks and using the proceeds to buy more bonds, Schock said.'Set your targets for each investment — how much you'd need to grow your money to be satisfied, and how heavy each investment should be relative to the rest of your portfolio,' said Callie Cox, chief market strategist at Ritholtz Wealth Management. 'If the allocation gets too big or small, consider buying or selling to get your money back in balance,' she said.'Wall Street portfolio managers do this on a regular schedule. It's a prudent investing exercise.' Rebalancing isn't just about stocks versus bond