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The Importance of Rebalancing a Portfolio Over Time

4 August 2015 in Inside Motif

Just like work and life can get out of balance sometimes, so can your investment portfolio. You can bring it back into alignment with your intended allocation through rebalancing.

While rebalancing may seem like a chore that you might be tempted to put off, it’s something to consider doing at least once a year, if not quarterly.

Here’s an example of what asset allocation drifting could look like in a portfolio.

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A portfolio’s allocation can drift over time because different investments accrue value at varying paces. This in turn can alter the portfolio’s balance, in terms of overall risk level and performance. An investment portfolio can experience shifts in the weightings of its asset classes, sectors, market capitalizations, country exposures, individual holdings, and thus the underlying strategy.

If an investor wants to maintain the intended target percentages, he or she can increase or decrease the size of existing holdings, or close out of some positions entirely and replace them with brand new ones.

How to rebalance a motif

Rebalancing motifs in your account is as easy as a few mouse clicks. The motifs in our catalog are periodically reviewed to help ensure they continue to reflect their original investing ideas. We automatically alert you when updates become available. It only costs a total commission of $9.95 to rebalance a motif, and the choice to rebalance is entirely up to you.

It costs just $4.95 to rebalance a portfolio at Motif Investing.

Step by step guide to rebalancing

1. Watch for “Update Available” alerts on the pages of any motifs you own.

2. 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.

3. If you are ready to proceed, click on the “Rebalance Positions” button.

4. 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.

Learn how to rebalance a motif

When should you rebalance?

Some financial advisors suggest rebalancing if your target weightings have shifted by 5 percent or more. But there is no hard-and-fast rule. Decide what frequency and drift range works best for you.

You might also choose to rebalance your portfolio whenever you see an opportunity to capture a profit in a particular holding by selling it at a high. Then you can invest the proceeds into a promising asset that you believe may appreciate in value. Rebalancing disciplines you to keep buying low and selling high, instead of hanging onto investments too long. Have you ever held on to a stock that has provided tremendous appreciation, only to give back all the gains a while later? Rebalancing can keep you more actively involved in your portfolio’s performance.

  1. Andy
    6 Aug at 4:10 pm

    The easier it is to rebalance, the better. I remember my old 401k account was incredibly confusing to rebalance so I rarely ever did it, which is unfortunate. And whenever I did, it would take me about ten minutes just trying to find the right area to navigate to. They had the most confusing menus and interface. So I love how you guys make it so easy. thanks!

  2. Jon
    10 Aug at 7:02 pm

    but doesn’t it only (maybe not “only”) make sense to rebalance if the motif itself has made more than the cost of the rebalance fee? if i purchased a motif for $250 and it’s lots value down to $225 – wouldn’t it be better to wait to rebalance once it has recouped its original value?