Create an Income Stream
Taking initial withdrawals of 4% or considering annuities are often recommended to retirees.
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.
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.
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