It’s a lot more fun to talk about rebalancing your portfolio when it’s out of whack because the market has gone up.
Most investors don’t need to think about rebalancing more than once a year, according to recent research from Vanguard. At the beginning of December, many mutual fund companies announce what their capital gain distribution percentages will be, and then you get the money later in the month. “If you know you’re going to reduce a mutual fund position, you’ll want to do it before that capital gain,” says Miller.
You can also take a strategic threshold approach to rebalancing, rather than looking at the calendar, and adjust your holdings when there are swings of 5% or more. A perfect time to rebalance would have been March 2020 for instance, says Miller. This approach takes a lot more awareness, both of the overall market and your holdings.
Coming up with a number on your own doesn’t have to be too complicated, and it doesn’t have to be expressed in big round numbers like 60/40 or 70/30. You can figure out the right mix for you with an online risk tolerance questionnaire or use a general rule like subtract your age from 100 to figure out your stock allocation. “It doesn’t need to be exact exact either,” says David Haas, a financial adviser and president of Cereus Financial Advisors, based in Franklin Lakes, N.J.
Assessing your progress is a bit harder. Even advisers have a hard time keeping up with all the different holdings that their clients have. A person might have a conservative strategy for a 401, a more aggressive approach to a Roth IRA and a speculative approach to a taxable brokerage account.If you can handle further complicating matters, you should also be rebalancing not just a stock-to-bond ratio but also among asset classes.
“Most people should blindly give money to investors so they can provide us support to bounce off of.”