The Dangers of ‘Set It and Forget It’ Retirement Plans

You Take on Excess Risk by Never Rebalancing Your Portfolio

Just because your portfolio starts out nicely balanced doesn’t mean it will stay that way, especially over a period of several years or more. When a portfolio gets out of whack, it can increase the amount of risk the investor is taking on, said Melinda Kibler, a certified financial planner, enrolled agent, and client service and portfolio manager with Palisades Hudson Financial Group’s Florida office in Fort Lauderdale.

“For example, when equities are performing well, the value of this portion of the portfolio increases relative to the fixed-income allocation,” she said. Kibler said a portfolio that starts out at 80 percent equities and 20 percent fixed income could easily become 90 percent equities and 10 percent fixed income when equities perform well.

“Without rebalancing the portfolio, the investor could have more exposure to equities and more volatility than they felt comfortable with initially,” said Kibler. “In addition, when an investor does not rebalance their portfolio, they are missing out on the benefits of selling when the investments are high, and buying when they are low.”

No golden rule exists for how often you should rebalance, but some experts say doing so annually strikes a good combination of keeping you protected and keeping trading costs low.

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