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Portfolio Rebalancing

July 19, 2021

Portfolio Rebalancing


Portfolio rebalancing is the process of adjusting a portfolio allocation back to a pre-determined asset allocation.


For example, let’s assume you and your advisor have determined you are best suited for a portfolio that is simply composed of 60% stocks and 40% bonds (i.e. 6040) which represents your initial allocation. Further, lets assume that after a period of time the stock portion of your portfolio goes up while bonds remain stable to a current allocation of 70% stocks and 30% bonds (i.e. 7030).


                           Pie before rebalancing                                                                                                         Pie after rebalancing


Portfolio rebalancing is the process of selling enough stocks and buying enough bonds to get you back to the 60% stocks and 40% bonds (6040). Rebalancing can be set in motion as markets fluctuate or possibly set up with automatic triggers (i.e. annual, semi-annual, quarterly, etc.)


Why is portfolio rebalancing so important?


The rebalancing process may stabilize risk and enhance returns. Systematic rebalancing has historically enhanced the value of your portfolio by .44% per year*.


Please contact your advisor or financial institution regarding any potential tax or fee consequences that may be associated with the rebalancing process.


*Capital Sigma: The Sources of Advisor-Created Value. 2015

Rebalancing may be a taxable event. Before you take any specific action, be sure to consult with your tax professional. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. All investing involves risk, including the possible loss of principal. There is no assurance any investment strategy will be successful.

Investment Advisor Representative offering advisory services and securities through Cetera Advisor Networks LLC, a Broker-Dealer and Registered Investment Advisor, Member FINRA/SIPC. Cetera is under separate ownership from any other named entity.