Time to rebalance investment portfolio?

"A better approach is to rebalance when your asset allocation gets seriously out of whack," Davis says. "If you set up a rule for yourself that says, 'When my equity weight is 5 percent greater than my target, maybe that's when (I) rebalance.' ... It does give you the chance to let your winners run a little bit, and it helps you reduce your transaction costs."

Stick to your plan

Davis points out that if you rebalance too often, you run the risk of generating more taxable gains as well as higher brokerage costs.

Like McDermott, Davis is a believer in having a plan.

"Often, inaction is better than action when you have a good plan to begin with," Davis says.

But that's only if the markets are in sync with your mix. John Bajkowski, a financial analyst at the American Association of Individual Investors in Chicago, says checking your portfolio regularly and keeping your asset allocations up to date are important, and so is patience.

"It's very important to have a long-term financial plan in place and try not to get too bogged down in the short term," Bajkowski says. "Take the big picture view and make sure you're comfortable dealing with market extremes.

"It's always easy when things are going well, but the market has tested us lately, and the people that panicked at the end of last year and sold off their equity positions are now probably sorry they did so," Bajkowski says. "That's why you need to have a long-term plan in place, and stick with it."

Rebalancing often has tax implications. For example, selling a high-performing investment could cost you in capital gains taxes on the profit you've made. Plowing those profits back into your portfolio could be more beneficial.

Do it yourself?

Bajkowski says investors can rebalance their portfolios on their own, and you can find tips on the American Association of Individual Investors Web site.

Nancy Mobberley, a Certified Financial Planner and owner of Financial Investment Network Inc. in Palm Beach Gardens, Fla., agrees that rebalancing can be a DIY project, but not everybody has the stomach for it.

"I have clients tell me they won't even open their statements," Mobberley says. "I tell them to at least take a look at it. You don't have to worry over it, but you need to know what you've got, and what it's doing."

News alert Create a news alert for "investing"


Show Bankrate's community sharing policy
          Connect with us

CDs and Investment

Can heirs cash an old trust?

Dear Dr. Don, The youngest of 6 children, I am 48 years old. My father joined the Navy at 22. In Italy, he met his bride and my mother, and returned to the U.S. to raise our family. In 1959, he bought a trust certificate... Read more



Jill Cornfield

Investors should not fear a Fed rate hike

If the Fed were seen as aggressive with rates, it could lead to a faster market slowdown, too.  ... Read more

Connect with us