Senior Spectrum
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August 2008
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How Often Should You REBALANCE?
There are many views on this subject, but two primary views prevail. One school argues that rebalancing should occur at regular intervals, regardless of one's assessment of market conditions at the time. Another school of thought argues that rebalancing should be event driven.
The first approach - rebalancing at regular intervals - has the advantage of taking emotions out of the picture, which sometimes can play havoc with investment decisions.
But the question then becomes: How often to rebalance? The answer depends on your tolerance for risk. Rebalancing frequently - even as often as monthly - tends to reduce volatility. But rebalancing less frequently - at intervals between one and four years in length - potentially allows winners more time to run.
Perhaps event-driven rebalancing is more appropriate to your situation. For example, when the actual asset-allocation of your portfolio differs from your target by a predetermined margin, it may be time to rebalance. By adhering to predetermined criteria, you may be able to remove emotionalism from the rebalancing process.
In either case, your asset allocation plan should be rooted in your own investment goals and tolerance for risk. If your goals or tolerance changes, you should revisit your asset allocation regardless of your rebalancing criteria.
(Matt V. Fiamengo is a qualified member of Million Dollar Roundtable as he has helped hundreds of seniors navigate their financial affairs. He is a Chartered Life Underwriter and a Registered Health Underwriter. For an interview or details on this issue, phone him at (775) 851- 8838 or e-mail: MattProClu@earthlink.net)