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Investment Portfolio Rebalancing : Passive vs. Active [Video]

by Financial Design Studio, Inc. / July 29, 2020


Today I want to explain the importance of investment portfolio rebalancing. One of the most important parts of investing your money for long-term goals such as retirement is to make sure you are rebalancing your portfolio often. This is so your portfolio is on track and you are not taking on too much risk or too little risk with your investments. 

Investment Portfolio Rebalancing Example:

70% Invested In Stocks
30% Invested In Bonds

You might have gone into this year and invested 70% in stocks and 30% in bonds.

But if we had a really good year in the stock market, like in 2019 where the stock market was up 30%, by the end of the year that allocation of 30% and 70% actually moved up to something like 75% and 25% by the end of the year. 

Now it is great that the stock market was up, but now you are going into the new year with an asset allocation that is more aggressive than the original target that you had for your investments. 

So what you want to do is rebalance your portfolio.

We call it portfolio rebalancing.  You do this at least once a year.  Take a look at your portfolio and if it is out of whack to your target allocation, then you want to sell off some stocks.  In this example, bring the 75% down to 70% and put that money back into bonds to bring the 25% back up to 30%. 

In this example, by resetting the investments back to 70% and 30%, this client makes sure they are on track and aren’t taking on too much or too little investment as they head into the new year. 

So if you need help managing your portfolio and you’re not even sure what asset allocation you should have, please reach out to us at Financial Design Studio. We are here to help you. 

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Contact us today for a free 30-minute consultation!

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Financial Design Studio, Inc.

We are financial advisors in Deer Park and Barrington, IL. A team with a passion for helping others design a path to financial success — whatever success means for you. Each of our unique insights fit together to create broad expertise, complete roadmaps, and creative solutions. We have seen the power of having a financial plan, and adjusting that plan to life. The result? Freedom from worrying about the future so you can enjoy today.