When you have investments that are going up, there is a tendency to hold on to them until you think they’re going to come back down. We want to stick with the winners. However, when you have long-term goals and a strategy that depends on a certain mix of stocks and bonds, if you stick with rising investments and/or bail out on the sluggish ones, you’ll more than likely come to find your portfolio way out of alignment with your strategy. This is when I think you’ll need to do something that may seem counterintuitive - to rebalance. The idea is that you sell off some investments that have risen and use the money to buy more of what has fallen behind. You may give up some short-term profits this way, but the goal is to guard against huge losses because your portfolio won’t become concentrated in one type of investment. You’ll maintain an appropriate mix of assets for your goals and, over time, hopefully reap the benefits of returns with lower risk.
I’d be glad to help you think through what your strategy should be for securing your future, so contact me and let’s talk. Please look at the rest of the articles and videos on my blog, too.
DISCLOSURE: All investing involves risk and the potential to lose principal. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. Please consult with your tax advisor regarding your personal situation.