• Retirement IncomeInsight
• Asset Allocation
• Dollar Cost Averaging
• RetireSense
• Starting to Invest Now
• Compounding
• Diversify Your Investments
• Investing in Foreign Markets
• Automatic Rebalancing
• Buy and Hold vs Market Timing
• Choosing Funds
• Protecting Assets

Putting the balance back into your portfolio

If your portfolio isn’t broken, you probably shouldn’t try to fix it.

Strategists generally suggest focusing on the long term with a diversified mix of various types of investments.

However, there are times to consider tweaking your portfolio to react to changes that could – or should – alter your investment strategy.

For instance:

• When your risk tolerance changes
• When you’re close to achieving a major financial goal – like helping a child through college
• When retirement is in sight

A key reason to buy and sell securities is to rebalance your portfolio by adjusting the mix to the asset allocation appropriate for your investment goals and tolerance for risk.

Restoring your asset allocation
Investment values constantly rise and fall. Major swings in value in one asset class may throw a portfolio invested in different asset classes off balance.

Also, life events may change your investment needs, tolerance for risk or time horizon.

But you can manage the situation. Assuming the investments are available, you can create or restore the asset allocation you want by rebalancing your portfolio.

The use of asset allocation, however, doesn’t guarantee returns or insulate you from potential losses.

How rebalancing works – an example

Say that stock market gains over the past three years have swollen that portion of your portfolio invested in stock funds.

If the current level is too high for your level of risk tolerance, you may be able to return to your original allocation.

How?

• By reallocating your assets from stock funds into other asset classes, such as bond and money market funds, or
• By investing more money in the underrepresented asset classes until you achieve the overall allocations you want

Meet Karen - A hypothetical example (see chart)
Three years after Karen invested her money in three different asset classes, gains in the stock market increased the value of her stock funds 22%. During the same period, the value of her bond funds grew 9% and her money market fund value was up 4%.

At the end of the period, the percentage of stocks in Karen’s portfolio was 63.1%. But she wasn’t comfortable with a level of investment risk that high – so she decided to return her asset allocation to the original percentages.

How did she do it? By selling shares in her stock funds and buying additional shares in bond and money market funds*.

^{*Money market funds: These funds are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other federal government agency. Although they seek to preserve the value of your investment at $1.00 per share, it’s possible to lose money by investing in money market funds.}

Another option: Automatic rebalancing
Depending on the type of investment, rebalancing can be regular and automatic.

Many asset allocation funds - mutual funds that split their investment assets among stocks, bonds and the like - rebalance as a matter of course, in order to stay within the portfolio’s objectives and risk parameters.

Take the next step

Regularly review your investment accounts and financial goals with an investment professional.

Performing an annual financial checkup can give you a view of your investment picture and whether there are gaps that need to be filled.

Consider rebalancing your portfolio if the mix no longer meets your investment objectives and risk tolerance.

How Karen rebalanced her portfolio

The information in this chart is hypothetical and used for illustration purposes only. It is not intended to predict the actual performance of any particular investment. The effect of taxes and the costs of investing have not been reflected.