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Tips for rebalancing nest eggs

By Jennie L. Phipps ·
Thursday, November 21, 2013
Posted: 9 am ET

The traditional advice to investors -- especially those in or near retirement -- is to rebalance investments frequently to cut risk. Many people choose the end of the year to do this because rebalancing can have tax implications.

This year, rebalancing can seem especially tricky in the wake of the substantial rise in the stock market -- the S&P 500 has been on a tear over the last nine months -- and the likelihood that the Federal Reserve could drive up interest rates, causing bond values to fall over the next few months.

John Sweeney, executive vice president for retirement and investing strategies at Fidelity Investments,  the nation's largest provider of 401(k)s, offers some insights about rebalancing in this environment. He points out that most people's retirement planning should assume that they could easily spend 30 years in retirement. With that lengthy horizon in mind, Sweeney says that often Fidelity advisers suggest that retirees consider a larger than traditional allocation to equities. The typical near or in retirement allocation might include 10 percent cash, 35 to 40 percent in fixed income and the rest in equities.

"That might seem like a really high-equity allocation for a 65-year-old, but the cash and the bonds are providing a buffer and the equities are providing the growth to fuel your income," he says.

Sweeney says that retirees, like other investors, have to learn to cope with a market that swings up and down. "Give CEOs time to grow their businesses over multi-year periods. You are going to get volatility in between," he says.

He also urges investors not to be too rigid about percentages when they think about rebalancing. "We allow our portfolio managers 10 percent of tolerance to let the winners run. You have flexibility. It isn't time-based. It is a market- and risk-based review."

If you're managing your own investments, this also could be a good time to let a professional take a look. Second opinions are useful in finance as well as health.

Have you rebalanced your portfolio recently?

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