Company Retirement Plan
Retirement plan
retirement
The right time to rebalance your portfolio

"Research indicates that if any one of (your) asset allocations is 20 percent out of whack, you need to rebalance," says Raymond, citing a paper in the January 2008 issue of the Journal of Financial Planning by Gobind Daryanani. "Let's say you want to have 30 percent of your portfolio in large U.S. stocks. As long as your portfolio has between 24 percent and 36 percent in those large-cap stocks, you're OK."

Revising your asset allocation plan

Suppose you're concerned that your original asset allocation may no longer be working to your advantage. Should you scrap it and set new investment targets? According to Raymond, a change in your risk tolerance -- not the desire to get higher returns -- should be the determining factor.

"The investor may decide that the market is too volatile for comfort or that the original allocation is too conservative," Raymond says. "A major life change or financial event may also call for an adjustment to your asset allocation model."

That event could be an income boost from a large inheritance or a work bonus. "You don't need to be as aggressive in your investing," Raymond says. "You can be a little bit more conservative and take a smoother road to your destination."

On the other hand, if your health is declining and you need to retire sooner than originally planned, you may need a more aggressive portfolio to make that possible, in Raymond's view.

Tinkering too much or not enough

Raymond warns that constantly changing your asset allocation in response to market whims can put you on the wrong track.

Let's say you decide to change from an 80/20 stocks-to-bonds ratio to 60/40, selling off stocks because the stock market is down. Later, you hear news of a market turnaround and decide to put all your retirement savings back in stocks. What you've done is sell low and buy high -- the exact opposite of what investment planners advise.

On the other hand, by selling your outsized positions on an annual basis and increasing your stake in the funds that performed poorly due to the cyclical nature of their holdings, you will have succeeded in buying low and selling high. It's a counterintuitive move that's tough to do in practice.

As Jaconetti points out, there is a downside to doing nothing at all. By letting your winners ride, "you would be taking on more risk," she says.

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