Savings & Investment, Smart Spending

New Year’s Resolution Check In – Rebalance Your Portfolio

Every now and then it is a good idea to take a good look at your investments and perform a portfolio analysis. This enables you to ensure that your money is working hard for you, rather than just sitting around collecting dust – or even losing value. Since it is still relatively early in the  year, why not make it a late New Year’s resolution and rebalance your portfolio as soon as you can?

Recent changes in the economy and government means that a portfolio that was last rebalanced some time ago – or never rebalanced – is probably not where you think it is. That is, if you had established the typical 60 percent in stocks, and 40 percent in bonds, then these percentages are probably not the same now. In plain English, your money could work harder for you if you rebalance your portfolio to reflect the changes in the market.

When your desired percentages change, it means that more of your money may be at risk for a loss, or that it is trying to earn money where too little money can be earned now due to a poor economy. Dorianne Perrucci at the Wall Street Journal advises that if there is just a little deviation from your chosen numbers, then you should not pursue rebalancing your portfolio at the present time.

Portfolio Diversification Provides a Hedge Against Loss

If your investments are largely within a single market, then your losses could be significant. However, since it is rather unlikely that losses are going to occur across the board in many markets at the same time. This enables one area to still see gains, while another part of the portfolio experiences losses. The SEC suggests that you do need to have some risk involved or you may not be able to make much in the way of gains – and you probably won’t reach your goals, either.

The SEC also advises that you have your money invested in a wide spread of companies even when investing in a single asset. If you only invest in four or five companies, you could still see a large loss depending on how those individual companies are run. But investing in at least a dozen companies in a single asset will help to ensure that your money is safer and more likely to produce the results you want. At least some of these companies are apt to see a profit even if some of them fail to do so. An easy way to do this is through mutual funds, which will also balance your investment between stocks, bonds, and more.

Another reason why you may need to rebalance your portfolio is because it may affect your retirement, says Walter Updegrave at Money Magazine. He mentions that if you are close to retirement, then you probably want to be sure that most of your money is not tied up in stocks, because this could put a large amount of your retirement funds at significant risk. At that point in life, you want to protect more of it from possible loss.

It Will Cost to Rebalance Your Portfolio

One reason you may want to think about how often you are going to rebalance your portfolio is that it will always cost money to do it. Anytime you make changes to your portfolio, whether you do it based on a calendar or on a certain percentage of change, it is going to cost. If you have not rebalanced your portfolio recently, why not make it a last minute late New Year’s resolution to take care of it as soon as possible?