Rebalancing

Last updated: April 13, 2016

An Important Step in Managing Your Portfolio is Rebalancing

Periodically, you may want to restore your portfolio’s original allocation by selling assets that have performed relatively well and buying a few that show promise for good performance.

For example:

  • If your small-company fund appreciates to the point that its original 10% allocation has grown to 15%, then sell enough of the fund’s shares to restore the 10% allocation.

  • Reinvest the proceeds in asset classes that haven’t performed as well.

  • Another approach to rebalance in this example would be to retain the small-cap fund at its appreciated value and then invest new funds in the other asset classes to bring them back up to their original percentage allocation.  

Rebalancing forces you to sell high and buy low over and over again.

  • Experts recommend rebalancing at least once a year.

  • If you rebalance too often, you may rack up excessive trading costs and possibly increase your tax bill.

*The information on this page is credited to IPT and Kiplinger. Their original materials are made available on the Kansas Securities Commissioner's website.

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