Many investors take a passive approach to their investment portfolios. They make few, if any, changes to their holdings over a year. While it’s smart to follow a long-term plan and not make changes on a whim, it’s also important to review and rebalance your holdings annually to ensure you maintain your preferred mix of assets. Putting your portfolio on “autopilot” and never checking in means you may lose both your asset allocation and your preferred level of risk – and you may be missing out on growth opportunities, too. The beginning of a new year is a smart time to reassess your portfolio, and below we’ll share portfolio rebalancing tips you might consider strengthening your portfolio in 2024.
Portfolio Rebalancing Tips: Review Your Assets in a Sensible Timeframe
Some investors check in with their portfolios every day. More passive investors may not even check their holdings annually, especially if they haven’t made any changes for a few years. Both of these approaches come with some pitfalls.
Too frequent check-ins may make you feel anxious and could lead to impulsive decisions based on short-term market fluctuations and emotions like fear. Being too lax about checking your portfolio could lead to stagnancy and missing out on long-term investing opportunities.
There’s a reasonable middle ground, though, which we suggest following. One of the most commonly cited portfolio balancing tips is to check your asset allocation at least once a year to make sure it’s consistent with your preferred strategy. In times of economic uncertainty, you may want to review your portfolio more often, though it’s still advisable to play the long game and not make emotional investment decisions not based on strategy.
Remember Your Priorities
The most common framework for investment portfolios is evaluating risk versus reward. Some investors can stomach the changing winds of the investment market more easily and take more chances with their holdings to earn more over time. Others are more conservative, preferring to protect their wealth and make modest but dependable gains over time.
Both strategies can work. However, it’s important to keep them in mind and use your priorities to evaluate whether it’s time for a change. Several portfolio rebalancing tips can help establish a baseline for success. One of the most common is the 70/30 rule, one that’s especially popular with younger or beginning investors. It puts forth that 70% of your investment portfolio should be tied to stocks, mutual funds, and other securities. The remaining 30% is allocated to bonds and less risky investments.
A variation on that plan is to make the stock percentage 100 minus your age. For example, if you’re 25, you would dedicate 75% (100-25) of your investment funds to stocks and 25% to safer instruments. As you grow older, you will likely rebalance your holdings with an eye to greater asset preservation and more consistent income.
Of course, your risk profile may be dependent on factors other than your age, so it’s best to evaluate portfolio rebalancing tips like those above against your own needs and goals. A financial advisor or investment advisor can help you strategize for optimal results.
Factor in Fees and Taxes
Buying and selling in the markets will usually come with fees, and you may owe taxes, too. Without a clear understanding of how taxes and fees are assessed – or, for example, when capital gains taxes are triggered – you could fail to optimize your financial position, or even weaken it.
Consider investing in tax-advantaged accounts that won’t expose you to capital gains taxes or other incurred fees. If you have some investments that generate interest or dividends, consider siphoning those payouts to under-represented asset classes. If you have multiple accounts, you can use realized losses in one to offset capital gains taxes in another.
Become a More Effective Investor with Portfolio Rebalancing Tips
The most important of all portfolio rebalancing tips is to cap your emotions in trading time. Rebalancing is not going on a buying and selling spree; it’s managing risk. Although the world has seen a few examples of getting quick gains through shorting certain meme stocks, that’s very much the exception and not the norm.
In this regard, a financial advisor can help you manage the uncertainty of the markets and provide you with solid portfolio rebalancing tips to increase your financial security. An objective expert can help you maintain financial health and point you to a prosperous new year.
If you think you or a family member would benefit from financial guidance on rebalancing or other investing strategies, give us a call at (540) 720-5656.
Source:
- [1] https://www.investopedia.com/terms/a/assetallocation.asp
Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.