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Investor Ed: Two Ways to Rebalance Your Portfolio

Keep your goals on track, no matter what the markets do, by regularly reviewing and adjusting your investment allocations

REVIEWING INVESTMENTS on a regular basis can help keep your portfolio from falling out of line with your long-term strategy. How you choose to do it can depend on a number of factors, including your risk tolerance, investment time horizon, cash flow needs and how often you prefer to meet with your advisor. Here are two approaches that may work for you:

Which method works better for you may depend on your personal preferences and the complexity of your portfolio.

Periodic rebalancing. This involves checking in on your portfolio at a preset time each year or quarter and making any necessary adjustments. This kind of schedule can help make rebalancing a regular part of your investing routine. But market volatility doesn't follow a schedule—you might find yourself rebalancing after a calm period during which not much has changed, or waiting too long to address a particularly volatile market.



For more insights on how to rebalance your portfolio—and why it’s important to do in volatile markets—read “Keeping Pace in a Transforming World.”

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"Tolerance band" rebalancing. Here you commit to making adjustments every time an asset rises or falls outside of a limit, or "tolerance band," you establish—for example, a change of 5% in either direction. While this method helps ensure timely attention when your portfolio needs it, it also requires closer monitoring and greater discipline than simply reviewing your portfolio at the same time each year.

Which method works better for you may depend on your personal preferences and the complexity of your portfolio. For many investors, mixing the two approaches may be useful, letting you respond as necessary when volatility spikes while also committing yourself to a review at least once a year. Your advisor can help you decide which approach might be most appropriate for you, in light of today's markets.

This illustration is hypothetical and does not reflect specific strategies we may have developed for actual clients. It is not intended to serve as investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Results will vary, and no suggestion is made about how any specific solution or strategy performed in reality.

3 Questions to Ask Your Advisor

  1. Has my portfolio drifted from my original asset allocation?
  2. Given recent market volatility, should I reconsider my risk profile and asset allocation?
  3. A few of my investing goals have changed—should I change my asset allocation?

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Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.




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