When to Rebalance

When and how often should you rebalance your portfolio? You can do it based either on the calendar or on your investment ratios. Many financial experts recommend that investors rebalance their portfolios on a regular basis: every six or twelve months. The advantage of this method is that the calendar reminds you when to rebalance.

Others recommend rebalancing when the relative share of an asset class increases or decreases more than a certain percentage that you set in advance. The advantage of this method is that your investments determine when to rebalance. In either case, rebalancing works best when done on a regular, but relatively infrequent, basis to minimize transaction costs.

You can direct your investment advisor to rebalance your portfolio accordingly to either of these methods. At Rosen Investment Management, we automatically rebalance our investors’ portfolios every quarter, after considering the tax implications of selling off assets, unless the asset ratio has not changed very much.

For example. if your investment strategy is 50% fixed income and 50% stocks, and at the end of the quarter the proportion is 48% fixed income and 52% stocks (because the stock value grew faster than the bond value), it probably doesn’t make sense to rebalance. But if, in the following quarter, stocks rally and your portfolio mix is now 39% fixed income and 61% stocks, we would rebalance to 50:50 by buying more fixed income securities.