Ask Petersen Hastings – What is rebalancing and how can it help my portfolio? May 14, 2020

In this installment of Ask Petersen Hastings, Wealth Advisor, John Keyes, answers a common question regarding rebalancing. Here’s what you need to know! 

What is rebalancing and how can it help my portfolio?

Video Transcript:

Hello everyone.  I am John Keyes, Wealth Advisor at Petersen Hastings in Walla Walla.

A question I often get is “I’ve heard of rebalancing, what is it? How can rebalancing help my portfolio?”

Rebalancing is a process of monitoring a portfolio’s asset allocation to maintain a desired level of risk which involves periodically buying or selling securities to keep the portfolio near that target asset allocation.

For a simple example of this, let’s say we have a portfolio that’s target allocation is 60% equities, and 40% fixed income.  In times when the stock market is falling, we may see this portfolio shift to 50% equities and 50% fixed income.  When the stock market goes up, the opposite may occur seeing a shift to 70% stocks and 30% bonds.  Rebalancing would be buying and selling securities to get back to the desired 60/40 allocation.  

Some ways that rebalancing can help your portfolio are keeping your portfolio at the targeted risk-reward allocation.  As an advisor, I help clients build portfolios to match their financial goals.  Letting a portfolio get too far off this allocation can hurt these financial goals if the portfolio gets too conservative to meet longer term needs or gets too aggressive, subjecting the portfolio to short term uncertainty.  Additionally, rebalancing can take advantage of drops and upturns in the market which often leads to less portfolio volatility.  

There are also things to consider when rebalancing your portfolio.  These include when to rebalance, tax consequences, if any, costs, and your time.  These are all things you should understand before rebalancing either by speaking with a financial advisor or through your own research.

If you would like to have a conversation about your personal financial situation or would like a second opinion on your portfolio, please feel free to reach out to me using the contact information provided below.  

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Author: John Keyes, Wealth Advisor

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