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How to Rebalance Your Portfolio
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"Buy low, sell high" is the mantra of good investing. The problem? It's almost impossible to know when a stock has bottomed out or when it has reached its highest point.
Fortunately, you don't need a crystal ball to have a healthy investment portfolio. You just need to stick to your game plan.
When you first set up your investment portfolio, you need to decide on an appropriate mix of stocks and bonds. The right combination for you depends on factors such as your age, your net worth and the amount of risk you are willing to assume. You can take a look at online tools such as TheStreet.com's allocation worksheet to get an idea of what's right for your situation.
While setting up the initial mix is an important first step to managing your portfolio, maintaining that balance is critical for your long-term financial success.
Say you're a young investor willing to take on a fair amount of risk. You decide on a mix of 80% stocks, 15% bonds and 5% cash.
After the first year, you take a look at your portfolio and notice that your stock holdings have dropped significantly. As a result, your portfolio now contains 70% stocks, 25% bonds and 5% cash.
In order to regain the right mix for your investment strategy, you must rebalance your portfolio, meaning you'll sell some bond shares and buy some stock shares.
Set a date to check in on your portfolio (every three, six or 12 months, depending on how active you want to be) and rebalance as needed, regardless of what is going on.
