Portfolio Rebalancing: 8 Tips from Portfolio Managers

By Francoise Crandell | June 08, 2018

You know how important it is to rebalance your portfolio as a part of your financial planning process. Rebalancing on a regular basis — whether annually, quarterly, or after certain percentage changes in your portfolio — helps your investments remain truly diversified. 

Francoise Crandell is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyBut do you know how to effectively rebalance your portfolio so you retain the right asset class allocation for your comprehensive financial plan? These eight tips from portfolio managers will help you keep your portfolio balanced... and diversified.

1. Determine your asset allocation strategy. Work with your wealth advisor to set a target asset allocation across a range of asset classes. Base your target asset allocation on your comprehensive financial plan and make this allocation your goal.

2. Set a rebalancing timeline. Rebalancing requires attention at consistent intervals based on tax considerations; your portfolio manager can help you determine the time frame that works best with your financial goals. Many investors choose to rebalance semi-annually, quarterly, or after significant market movement.  

3. A total portfolio view should be part of your comprehensive financial plan. Taking a total portfolio view when rebalancing means you'll consider both taxable accounts and your retirement accounts, such as IRAs or 401(k) plans. A total view also helps you mitigate risk and remain tax-efficient.

4. Retirement plans: Choose auto-rebalancing for ease.  Speaking of 401(k)s, many defined contribution plans offer an "auto-rebalance" option. This feature allows you to set your desired asset allocation, then at the selected time interval, your account will automatically rebalance back to your target allocation. Not only does this make it Francoise Crandell is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt Countyimpossible to forget to rebalance, it also saves you any potential hesitation that may come along with redistributing returns. Typically, accounts auto-balance every six months, but you can change your time interval as you choose. 

5. Strategic wealth planning: Bring in new funds. Got more money you'd like to invest? First, take a look at where your current assets are allocated, then use the new funds to balance out any buckets that may be below their target allocation. You may even be able to utilize your 401(k)'s auto-rebalance feature to direct contributions to certain asset classes.

6. Take advantage of tax-loss harvesting. If your portfolio's value has decreased, make the most of the loss and take advantage of tax-loss harvesting. This wealth strategy allows you to sell a holding, take a loss, then write off the loss for tax purposes. Talk to your wealth advisor to determine if this strategy is cost-effective for you.

7. Give back. 
If your holdings are appreciating, give back through charitable donations as part of the rebalancing process. You can gift shares of stocks, funds or ETFs, providing a charitable tax deduction on their market value and allowing you to avoid paying capital gains.

8. Stick to your long-term wealth plan. While it can certainly be tempting to hang on to a "winning" stock and let it run, rather than sell it, rebalancing is part of following a disciplined financial plan. Instead of attempting to beat the market, remember that you've got long-term goals... and a disciplined approach is the way to meet them.

Posted in Financial Planning, Investment Guidance