When you should rebalance your portfolio
 Every
now and then you should reexamine your asset allocation strategy
in light of current and expected market conditions. By rebalancing
your portfolio’s holding of stocks, bonds and cash,
you can lessen the risk in downturns and improve the growth
in upturns.
When should you rebalance? One rule of thumb is to consider
rebalancing if your portfolio has shifted more than 5% from
your recommended asset mix.
Here’s another scenario that would call for a rebalance.
Let’s say you’re a moderate growth investor and
you’re building your portfolio during a growth phase
in the economy. To capitalize on expanding corporate profits,
you’d want to have a relatively high percentage of stocks,
perhaps 60%, with 30% in bonds and 10% in cash.
When the economy enters a contracting phase, interest rates
may rise, and corporate profits may begin to shrink. You might
want to move away from stocks, and more to bonds and cash,
for example to a mix of 20% stocks, 45% bonds and 35% cash.
Many investors struggle with the question of what percentage
equities should comprise in their portfolio. There are really
no set formulas – it depends on your goals and investor
profile. However, as a general rule, the older you are the
less equities you should have.
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