How Often Should You Rebalance Your Portfolio?

They say that a watched pot never boils, but even a master chef needs to check the stove from time to time. Like the perfect dish, an investment portfolio should be well balanced and carefully observed in order to become something really satisfying. But just like with food, too much meddling can wreak havoc on investments.

How often should you rebalance your portfolio?

The exact answer may vary from investor to investor. But no matter what it is, taking time for checkups may help keep your retirement on track. Read on for insights from Tony Marquez, CFP®, a Financial Consultant with American Century Investments, about why a portfolio needs to be rebalanced and what steps investors can take to be sure they’re doing it wisely.

Tony Marquez, CFP
Financial Consultant

Why Rebalance Your Portfolio?

As you probably know, pretty much everything needs some review and maintenance to keep it in good working order. That’s true for your car, your washing machine, your computer. An investment portfolio is no exception. You can leave investments alone. However, they’ll naturally run off track as some investments grow faster than others. Your overall portfolio could become misaligned. And that could expose you to more risk than you’re comfortable with.

“Say you set yourself up with a traditional 60% stock, 40% bond portfolio,” explains Marquez. If you started that investment strategy in 2009 and left it alone, “as of 2021, that portfolio could have potentially shifted to about 85/15. So, 85% stock, 15% bond.”

You might have intended to be a moderate investor in 2009. But let’s say that over the years, your stocks outperform your bonds, increasing in value and proportion in your portfolio. In that case, your unbalanced portfolio will likely have taken on significantly more risk a dozen years later. And by now you’re probably closer to retirement and likely even less interested in a riskier portfolio. 

Rebalance Your Mix

Rebalancing in Action

Original Allocation: For example, you may have decided to allocate 60% of your portfolio to stocks and 40% to bonds.

Out of Balance: If market activity causes the value of your stocks to increase, you'll have a greater percentage invested in stocks, leaving you exposed to more risk than you intended.

Rebalanced: Rebalancing—buying more bonds and selling stocks—gets you back to your original 60/40 mix.

Keep in mind that this doesn’t mean you made a mistake to begin with. A portfolio falling out of whack is natural. That’s especially true when you invest in a mix of growth and value holdings .

How Often Should You Rebalance Your Portfolio?

Once you understand why you need to rebalance your portfolio, your next question is probably how often you should rebalance it.

Tony Says

“At a minimum, at least review your overall portfolio annually,” recommends Marquez. That means setting aside time with your financial planner for a deep dive into your investments. 

An annual deep dive could be a time to make changes based on personal risk level, shifts in the market and your advisor’s expertise. Marquez points out that there’s a difference between “watching” a portfolio and actively rebalancing it. “Just because you’re watching the market doesn’t mean that you’re going to get the outcome you want,” he explains.

Will a portfolio perform better if you balance more often? Not necessarily, says Marquez. “We set these portfolios up for long-term approaches, right? So, if you are focusing on it too often, you’re not allowing it to do what you want it to do.”

A long-term retirement portfolio doesn’t need checking every day. It’s all about the long game, not the day-to-day moves. If anything, too many check-ins are a waste of an investor’s time, energy and even emotions.

Being OK with a certain amount of portfolio “drift,” as Marquez puts it, helps you avoid the pitfall of watching it too much. And too much scrutiny can lead to unnecessary worry and anxiety. “I think the biggest risk is just all the stress that overbalancing is going to bring to you,” says Marquez.

How Should You Rebalance Your Portfolio?

During your portfolio review, there are a few key ideas to keep in mind:

  • Timing. Has the timing you’ve planned for your portfolio changed? Are you on track to retire sooner or later than you anticipated? Do you plan on using non-retirement investments in the near future?
  • Savings goals. Have your investment objectives changed? Are you hoping to save more for retirement, your children’s education or perhaps a property? (Our calculators may help you adjust to meet new goals, if you need to.)
  • Risk tolerance. How much risk are you comfortable with? Has that changed in the past year?

Working through these questions can help you rebalance your portfolio. And it may also help inform the investment strategy you use going forward.

Your annual portfolio rebalancing should be more than just a look at the numbers. It ought to be an opportunity for you to revisit everything from your overall financial situation to what the stock market has been doing during the past year.

Do You Need Help Rebalancing Your Portfolio?

Rebalancing on your own can be a challenge. You may even overlook market trends or personal insights that could benefit your investing future. That’s why working with a financial professional can come in handy.

“There’s a reason why financial professionals have a job. It’s because we have the ability to really focus on your investments and think about what’s right for each situation, day in and day out,” Marquez explains.

Yes, it’s still important to let investments grow untouched. But just as a chef tastes the soup every so often to make sure it’s perfectly spiced and blended, an occasional rebalancing can help your portfolio align more closely with your future financial goals. 

Let’s review your portfolio together

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

Rebalancing allows you to keep your asset allocation in line with your goals. It does not guarantee investment returns and does not eliminate risk.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.