Reallocating and Rebalancing

As your life and your goals change, your portfolio needs to change to keep up.

Reallocation is the process of adjusting your portfolio to fit a new set of goals. If you’re thinking about going to grad school in a year or two, you might want to switch to a more conservative asset allocation to be sure you have the money you need for tuition. You could reallocate by selling stocks and emphasizing cash investments.

Sometimes, even when your goals stay the same, you have to respond to what’s happening in the investment markets.

Rebalancing is a way of tweaking your portfolio in response to market ups and downs. If you have an aggressive asset allocation but your bond holdings have a great year, your asset allocation could end up more conservative than you intended. You could rebalance by selling off some bond investments and purchasing stocks.

You don’t have to reallocate or rebalance often. But you’ll want to give your portfolio a yearly checkup to be sure you’re still on track.

 

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