The investor may then decide to sell some stocks and buy bonds to get the portfolio back to the original target allocation of 50/50.” ( Investopedia Jun 22, 2019) If the stocks performed well during the period, it could have increased the stock weighting of the portfolio to 70%. For example, say an original target asset allocation was 50% stocks and 50% bonds. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk. “Rebalancing is the process of realigning the weightings of a portfolio of assets. I hope to demonstrate why rebalancing can offer value in achieving your retirement goals by mitigating your risk as you embark on decades worth of investing. ![]() Record market highs seen over the last seven years as well as the current sharp market downturn can result in portfolios deviating from the target allocation you initially elected to embrace. Then we will look at 26 years’ worth of portfolio returns and track the equity allocation during that period. ![]() To first understand the importance of rebalancing your portfolio I would like to begin by providing a definition of what rebalancing is. How many of these investors wish they could step back in time and implement a recurring rebalance for their portfolio that would have consistently sold a portion of their equity holdings and purchased more fixed income? This is probably especially true for those older investors whose equity allocation had risen too high for their age due to the long running bull market. The recent volatility of the stock market during the COVID-19 pandemic has likely delayed retirement for many Americans.
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