Brad Willems October 30, 2023 Wealth Planning

Don’t Let Your Portfolio Drift Off Course: The Power of Regular Rebalancing

When it comes to investing, it’s easy to get caught up in the day-to-day fluctuations of the markets. But as any experienced investor will tell you, the key to long-term success isn’t timing the market or trying to predict which way it’s going to move next. Instead, it’s about having a well-diversified portfolio that’s tailored to your individual goals, risk tolerance, and time horizon.

One of the most important steps you can take to help ensure that your portfolio stays on track is to regularly rebalance it. But what exactly does rebalancing involve, and why is it so important?

Rebalancing is the process of bringing your portfolio back in line with your desired asset allocation. As market conditions change and some investments perform better or worse than others, your portfolio’s allocation can drift away from what you originally intended. This can increase the overall risk of your portfolio or cause it to become too heavily concentrated in a particular asset class.

By regularly rebalancing your portfolio, you can sell assets that have grown in value and become a larger portion of your portfolio and use the proceeds to buy assets that have become underweighted, bringing your portfolio back to its target allocation. This can help to manage risk and improve returns over the long term.

Rebalancing also forces you to be disciplined, by selling high and buying low, which is the opposite of the natural tendency to do the opposite. This will help to lock in gains and manage risk.

Additionally, rebalancing can also be an opportunity to review your portfolio and make sure that it is still aligned with your goals, time horizon, and risk tolerance. It’s a good practice to do a regular check-up of your portfolio, to make sure that it still aligns with your goals and risk profile, and that you are on track to achieve your investment objectives.

So while it’s important to stay informed about the markets and be aware of what’s happening in the world, the key to long-term investing success is having a well-diversified portfolio and regularly rebalancing it. By taking the time to rebalance your portfolio, you can help to manage risk, lock in gains and stay on track to achieve your investment goals.