Your investment portfolio is a little like owning a car – everything’s great when things are running smoothly, but if it gets out of whack it can cost you some serious money until you get it back in working order.
Your car might signal a significant problem by making funny noises, but a portfolio that’s out of balance probably needs a little closer inspection.
A portfolio that has “drifted away” from an investor’s original intentions might look something like this:
Allocations can drift over time because your investments don’t accrue at the same pace, which can ultimately change your portfolio’s risk level and performance. This can happen because of any number of unintended shifts, including the weightings of its asset classes, sectors, market capitalizations, country exposures, and individual holdings.
To maintain your intended target percentages, you can easily rebalance your portfolio by changing the size of your holdings, or closing out entire positions and replacing them with brand new ones.
How to rebalance a motif
Rebalancing any motif is simple. We frequently review the motifs in our catalog to ensure they reflect the original investing ideas, and we automatically alert you when updates are available.
Step by step guide to rebalancing
- Watch for “Update Available” alerts on the pages of any motifs you own.
- 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.
- When you are ready to proceed, click on the “Rebalance Positions” button.
- 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.
When should you rebalance?
Some financial advisors say you should rebalance if your target weightings have shifted by 5 percent or more. But that’s just a suggestion – decide for yourself how much drift you’re comfortable with in your portfolio.
You might also want to rebalance when you see an opportunity to capture a profit in a particular holding by selling it at a high. For example, maybe one of your stocks has just set a new 52-week high after the company’s surprisingly good earnings report. You can take those proceeds and put them toward another stock in the sector that might have more room to run.
There’s nothing wrong with reinforcing the goal to buy low and sell high. Rebalancing can be a great tool to keep you more actively involved in your portfolio’s performance and help you avoid the sin of not making a trade when conditions are ideal.
Are you ready to rebalance?