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Rebalancing Your Portfolio: Everything You Need to Know

November 21, 2019

Investors are always working to balance their portfolios, but that’s not a one-time thing. Over time that portfolio will need rebalancing, as well. When you rebalance a portfolio, you focus on your main goals and how you want to bring those goals to pass.

That can be done through real estate, alternative investments, and much more. But what’s the right option for you, and why would you adjust your portfolio again? Here’s what you need to know, whether you’re just getting started as an investor or you’re a lot closer to retirement.

What it Means to Rebalance a Portfolio

A strong investment portfolio is well-balanced, in that it has a nice mix of different asset classes. There should also be diversification inside each one of those classes, in order to maximize the value of the portfolio for the investor. But over time, the quality of the specific investments can change. Some will perform better than others, and keeping the same investments throughout your entire life may not make sense. Rather than stick with the investments you started with 20 years ago and hope they get better, you can rebalance your portfolio by dropping some investments and choosing alternative investments, instead.

Some investors use the term rebalancing loosely, in that they only make a few small changes. But true rebalancing of a portfolio means to ensure that the risk of that portfolio is adjusted to fit the level the investor is looking for. Most of the time, that’s lower risk for older investors and higher risk for younger investors. But that’s not always the case. Some younger investors prefer a lower-risk option they can keep for the long term. There are older investors who keep higher-risk investments, as well, even though it could be financially dangerous. Rebalancing a portfolio is very important for good investment health.

How to Rebalance an Investment Portfolio

There are several ways to rebalance an investment portfolio. One of the most common ways is to allow a financial advisor or investment counselor to simply make adjustments. While there’s nothing wrong with allowing a trained and trusted individual to manage your investments, it’s also a good idea for you to have strong investment knowledge. That understanding will help you manage your own investments, and will also help you consider what level of risk and reward you want to carry toward your retirement. For a good rebalancing of your investment portfolio, you should be focused on a high level of diversification.

Having diversified assets will help protect the dollars you invest, no matter where those dollars go. If one investment does poorly, another better-performing investment will offset the issue. Rebalancing and diversification go hand in hand. It can be easy to get involved in a stock or mutual fund and keep all your investment money right there because the overall performance is decent. But is that performance really as good as it could be? The odds are high that further diversification and rebalancing will mean better returns. Real estate, stocks, bonds, and other investment sources can all be good choices, in moderation.

How often one may want to rebalance their portfolio is up to them. Some prefer checking in annually, others may want to make shifts on a monthly or quarterly basis. You can also rebalance your portfolio based on a percentage change. For example, if you prefer your stock allocation to be around 30% but it has grown to 34%, you can re-allocate that 4% elsewhere. 

The Benefits of Portfolio Rebalancing

The largest benefit of rebalancing your portfolio is improving the quality of it. No matter how strong that portfolio is, there are options you can consider to make it better. If you rebalance your portfolio periodically, you’ll see the benefits of that rebalancing over and over again. When you rebalance the way your investments are structured, you can sell some that are underperforming. Then you can buy more of the ones that are doing well. You might also want to try something completely new in some areas of investment, to add even more diversification to your portfolio over time.

By following the markets to adjust for trends and making sure you adjust your risk level as you age, your investment dollars can work smarter. You can also add real estate to your portfolio, through DiversyFund’s Growth REIT. We understand the importance of strong investments, especially as you get closer to retirement age. By providing a REIT you can trust and rely on, we’ll offer you more benefits to adjusting and rebalancing your portfolio. That can give you not only a better financial future, but can also provide you with additional peace of mind and security for the short-term and long-term, as well.

Don’t Settle for Less Than the Best Investment Opportunities

The best investments are the ones that work for the investor. But those investments should also be well-diversified in order to offset other investments that might not be performing as you’d hoped. DiversyFund offers investors the opportunity to allocate a portion of their portfolios to alternative investments in real estate. The more opportunities you take to invest in different asset classes, the stronger your overall portfolio health will be.

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