Why You Need to Rebalance

   Your portfolio is a living and breathing creature and it’s constantly changing. That’s because you’re invested in the market which changes every single day. If the market is moving, your portfolio is moving. The problem is that over time some of your investments are going to outperform others. When this happens, the outperforming investments grow and take up a greater percentage of your portfolio. When one investment does well and another does equally as bad this occurs at double the pace.

   For example, let’s take a simple portfolio that’s made up of just two investments. A $50,000 portfolio with 50% in a bond fund and 50% in an S&P 500 index fund. For the sake of the illustration let’s say that over the past year the S&P has gone up 15% and your bond fund has only returned 5%. Most investors would still be thrilled as they made a lot of money, but there’s one problem. The portfolio is significantly overweight in stocks compared to your target mix which exposes you to greater risk and potentially great losses if stocks fall again. When you save it's a must to now what you're invested in, rebalancing helps you keep track of what you own. See you soon Finwiz.