: Portfolio rebalancing is important. You’re not smarter than the market, and it’s not different this time.

by | Dec 2, 2022 | Stock Market

Asset allocation is about dividing your portfolio among various investment asset classes like stocks, bonds and cash, and sub-asset classes like small, large and midcap stocks. Bonds and international investments, as well as growth and value oriented equities are often part of a well-diversified portfolio.  In order to maintain your target asset allocation through the market’s ups and downs, it’s important to periodically review your portfolio for rebalancing. If the actual allocation of one or more asset classes varies from the target allocation by more than a specified amount then it is time to buy or sell holdings in this asset class to bring the allocation back to its target level. 

Want actionable tips for your retirement savings journey? Read MarketWatch’s ‘Retirement Hacks’ column Your portfolio should be reviewed periodically to see if rebalancing is needed. This should be done at least annually, more often such as semiannually or quarterly if appropriate.  There are several reasons why portfolio rebalancing is important for investors.  Maintaining the proper level of portfolio risk  One of the main goals of asset allocation is to maintain a proper balance between the potential for downside risk versus the potential reward across your portfolio. Over time the performance of the various asset classes represented inside of your portfolio will vary both up and down depending on market and economic conditions. We have certainly seen this in the markets in 2022.  Read: Planning to retire? Life is a mission — not a career — and it’s never too late to begin. Over time these variations in performance will cause the actual allocation of your portfolio to vary from your target allocation. This can cause you to take too much or too little risk. Af …

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