Global View Investment Blog

Does Your Portfolio Need Rebalancing? 10 Times to Check

As SC investment advisors at Global View, we want investors to start looking at rebalancing their portfolios the same way as they would scheduling an annual physical exam or a regular oil change on a car. You do all these things as acts of maintenance, to make sure things are operating as they should and to detect problems you may need to address.

What’s more important than the health of your financial plan?

Having a well-balanced and properly diversified portfolio is important. Why? Read our recent blog post: Your Eggs and Your Baskets: Why Diversification is Important.

When you rebalance your portfolio, you are able to: 

  • Change how much of your portfolio is allocated to particular assets.
  • Introduce new asset classes to your portfolio.
  • Change the investments you hold within each asset class.

The need for rebalancing naturally occurs over time when particular asset classes become overweighted or underweighted relative to your optimal asset allocation strategy. Asset allocation is the percentage of different types of investments (i.e., stocks, bonds, real estate, commodities, etc.) in your portfolio. It should reflect your risk tolerance and your demand for returns in order to meet your long-term goals, such as having a large retirement nest egg.

The act of rebalancing can serve as a way to avoid panicked trading that can compromise your long-term returns. It often takes fortitude to avoid fearful selling in a bear market, but thoughtful rebalancing (along with calming influence of your financial advisor) superimposes a logical reasoning to your portfolio makeup that can help you withstand self-destructive impulses caused by temporary volatility.

Rebalancing doesn’t typically involve radical changes. Often times, adjusting just 5 to 10 percent of your investments to reflect your current priorities and the state of the markets is what you need.

While it’s wise to review your portfolio at least once a year to see if it’s still appropriate for your situation, there are many events that may also precipitate the need to rebalance.

The Global View team has identified 10 such events that may trigger a conference with your financial advisor to review your portfolio and consider changes to your holdings.

 

Schedule a no-strings-attached financial review with the team at Global View to find out if you’re on track to reaching your goals.

 

Does Your Portfolio Need Rebalancing? 10 Times SC Investment Advisors Want You to Check

1. You’re Not Hitting Your Goals: No portfolio consists 100 percent of winners that meet or exceed your expectations. Some investment ideas just don’t pan out, robbing you of the returns you expected. Rebalancing allows you to change your investments in securities, funds and asset classes so that they are better positioned to provide you the risk-adjusted returns you demand.

2. You Have a New Job/Income: When your income increases, you presumably have more money to invest. Rebalancing allows you to invest the additional money while preserving your preferred asset allocations. In addition, having additional income may change your risk tolerance, allowing you to, say, increase your commitment to stocks and other riskier investments. Is it time to re-evaluate your risk tolerance? Find out now.

3. You Reach a Goal or Create a New One: Reaching an investment goal creates the opportunity to lock in capital gains by selling a winning investment and allocating the proceeds to new, promising securities. By purchasing securities that you consider to be underpriced, you can put your previous trading profits to work in investments that are more compelling on a risk/return basis. Make sure to discuss your returns fully with your financial advisor before you make any changes to your portfolio on your own.

4. There’s a Change in Your Family Structure: Family changes (i.e., marriage, divorce, a new child, blended families) can have a profound impact on your risk tolerance, and therefore call for rebalancing your portfolio to reflect your new circumstances. For example, a family change may cause some investors to become more conservative or to increase the desire for investment income (through dividends, interest and/or capital gains), while other investors may want to adopt a more aggressive risk tolerance. Certain events, like the arrival of a new child, may require you to establish separate, new portfolios, such as a 529 college fund, with different characteristics and time horizons.

5. You Experience a Life Change: Family changes are one form of life change. Others include retirement, death, disability and changed circumstances or goals. Rebalancing should be considered to accommodate new goals spurred by a life change. For example, you may want to reduce the volatility of your portfolio after retirement to preserve your capital and to increase your income, while still maintaining some aggressive investments that can protect against inflation.

6. Your Spouse Retired: When your spouse retires, your household income may drop, and you may have to start tapping into your retirement savings. You may also take the opportunity to claim Social Security benefits. It might be the time to fulfill long-held plans, such as relocation or travelling. When this happens, it’s a great time to take a fresh look at your asset allocations with an eye toward preserving your wealth while funding important dreams.

7. You Take on New Debt: Debt introduces risk – the risk that you won’t be able to repay the debt as agreed. Your overall portfolio balance may need adjustment to account for this additional risk. For example, you might want to take a more risk-averse investment stance in which you compensate for the riskiness of additional debt. You may want to add conservative, fixed-income securities that can secure your debt repayment schedule. Talk to a financial advisor about the strategies that work best for you.

8. You Withdrew from a Retirement Account: As you approach age 72, it’s important to consider how you will make your Required Minimum Distributions (RMDs) from your qualified retirement accounts and how these will prompt you to rebalance your portfolio. Care is needed at this time to keep your portfolio in balance as you begin taking withdrawals, so you don’t upset your preferred asset allocations nor decrease the diversification of your holdings.

9. You Relocated: Often times, when you move, you experience lifestyle changes that can also impact your finances. Perhaps you are downsizing after retirement or upsizing to welcome new family members. Maybe you’ve received a promotion that requires you to relocate. In all cases, it’s wise to review your budget and reconsider your investment goals. Rebalancing helps ensure your portfolio supports your new needs.

10. Annually: Even if the year was uneventful, it’s smart to review your portfolio at least once a year. This allows you to harvest winners, prune any losers, reconsider your financial goals and adjust to an investment horizon that has shrunk by one year. Portfolios drift over time, so your annual rebalancing lets you correct your allocations to keep them on course.

 

Takeaway

Investing is an important but delicate part of a comprehensive financial plan, especially in a year like 2021 as we adjust to life after COVID-19. Rebalancing your portfolio not only impacts your overall risk/return stance, but it can also have cost implications due to trading fees and taxes.

To make sure you’re making the right move, discuss your situation with a financial advisor you trust. The SC investments advisors at Global View are passionate about helping clients ensure their portfolio rebalancing is effective, efficient and logical.

If you’re currently looking for a SC investment advisor to work with or are ready for a second opinion, give us a test drive. A complimentary financial review can have a long-lasting effect. Get the conversation started.

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Erin Sweatt

Written by Erin Sweatt

Erin works as a paraplanner alongside our Advisors in managing client relationships and special financial planning needs, including retirement transition, education, and estate planning. Erin began working in the financial advisory business upon graduating from the University of Georgia with a BS in Financial Planning in 2015. She competed in the National Financial Planning Student Challenge in 2014. Erin is a member of the Financial Planning Association. She volunteers at Habitat for Humanity as a Financial Assessor.

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