Just like work and life can get out of balance sometimes, so can your investment portfolio. You can bring it back into alignment with your intended allocation through rebalancing.
While rebalancing may seem like a chore that you might be tempted to put off, it’s something to consider doing at least once a year, if not quarterly.
Here’s an example of what asset allocation drifting could look like in a portfolio.
A portfolio’s allocation can drift over time because different investments accrue value at varying paces. This in turn can alter the portfolio’s balance, in terms of overall risk level and performance. An investment portfolio can experience shifts in the weightings of its asset classes, sectors, market capitalizations, country exposures, individual holdings, and thus the underlying strategy.
If an investor wants to maintain the intended target percentages, he or she can increase or decrease the size of existing holdings, or close out of some positions entirely and replace them with brand new ones.
How to rebalance a motif
Rebalancing motifs in your account is as easy as a few mouse clicks. The motifs in our catalog are periodically reviewed to help ensure they continue to reflect their original investing ideas. We automatically alert you when updates become available. It only costs a total commission of $9.95 to rebalance a motif, and the choice to rebalance is entirely up to you.
Step by step guide to rebalancing
1. Watch for “Update Available” alerts on the pages of any motifs you own.
2. Click on the “See Available Updates” button to compare your current stock weights against the changes available in the proposed rebalance. Stocks to be removed appear in red and stocks to be added are indicated in green.
3. If you are ready to proceed, click on the “Rebalance Positions” button.
4. Confirm your order by clicking on the “Place Order” button and all of the rebalancing adjustments will be completed in real time.
Tip: Did you know you can add funds when you rebalance and save money on commissions? Learn how.
Learn how to rebalance a motif
When should you rebalance?
Some financial advisors suggest rebalancing if your target weightings have shifted by 5 percent or more. But there is no hard-and-fast rule. Decide what frequency and drift range works best for you.
You might also choose to rebalance your portfolio whenever you see an opportunity to capture a profit in a particular holding by selling it at a high. Then you can invest the proceeds into a promising asset that you believe may appreciate in value. Rebalancing disciplines you to keep buying low and selling high, instead of hanging onto investments too long. Have you ever held on to a stock that has provided tremendous appreciation, only to give back all the gains a while later? Rebalancing can keep you more actively involved in your portfolio’s performance.