Understanding Portfolio Rebalancing

Portfolio rebalancing is a crucial yet often overlooked task among do-it-yourself investors. It involves realigning the weightings of assets in a portfolio by periodically buying or selling assets to maintain an original or desired level of asset allocation or risk. This process is essential to ensure your investment portfolio stays on track with your financial goals and can boost returns significantly over time.

Methods of Portfolio Rebalancing

There are several methods to achieve effective portfolio rebalancing, each with its own advantages:

 

 

• Event-Based Rebalancing: This approach involves rebalancing the portfolio in response to significant market movements or at the occurrence of a major event like an interest rate change.

 

 

• Accumulation Rebalancing: Here, investors use new contributions to their portfolios to buy assets that are underrepresented, thus achieving a desired allocation without selling existing assets.

 

 

• Drift Rebalancing: This method involves rebalancing whenever the asset allocation drifts beyond preset tolerable limits.

 

 

• Periodic Rebalancing: Rebalancing is done at regular intervals, such as quarterly or annually, regardless of market movements or drift.

 

 

The Financial Benefits of Rebalancing

Rebalancing your portfolio can add substantial value over time. Depending on the timeline and type of portfolio, investors may see an increase in returns of 6 to 7 percent through disciplined rebalancing. This significant improvement arises from buying low and selling high, thus capturing market fluctuations in favor of the investor.

Our Unique Approach at CochranMickels Retirement Specialists

At CochranMickels Retirement Specialists, we employ a combination of rebalancing methods tailored to meet the specific needs and time horizons of our clients' portfolios. Our personalized approach ensures that your investments remain aligned with your financial objectives while minimizing risk where possible. This strategy allows us to cater to the unique goals of individuals approaching and in retirement.

Rebalancing isn't just an administrative task; it's a strategic maneuver that smart investors utilize to maximize their investment potential. If you would like to explore how rebalancing can enhance your portfolio's performance, do not hesitate to reach out to us at 256-417-4870 or 813-522-4455 for more personalized advice.

 

Mike

 

About the Author

Mike Mickels is the President and Chief Compliance Officer at CochranMickels Retirement Specialists, LLC. Beyond his professional endeavors, Mike is an avid sporting clay competitor. His firm specializes in providing custom-tailored retirement planning and investment services. Please note, this content is intended solely for informational purposes, and it is crucial to consult with a financial advisor where necessary. Investing carries risks, including the potential loss of principal capital.