Three Times To Rebalance Your Portfolio

Question: How often should I rebalance my portfolio?

Answer: It’s best to rebalance your portfolio about once (give or take a few months) a year. That’s long enough to allow a well-thought-out strategy to work and time for a year’s worth of news and asset price and risk changes to be considered.

Of course, like all good rules of thumb, there are exceptions. Here are three:

• Significant change in the economy or investment outlook: Obviously, if you base a strategy on a particular outlook, and that drastically changes, the portfolio mix needs to change as well. This is one of the reasons every January AMG offers clients several possible economic scenarios to choose from when rebalancing their portfolios. If the selected scenario doesn’t pan out, you can easily shift into a new allocation based on a new scenario.
• Major life change: Marriage, divorce, illnesses, births and deaths can lead to a sudden change in needs. When these changes occur, it might be time to look at a new portfolio allocation.
• Priority switch: Change doesn’t have to be big, and it doesn’t have to be external. Your priorities could change. Maybe you’ve decided helping the next generation is more important than ensuring your own security, or maybe you’ve decided to become a philanthropist, or maybe you just don’t want as much portfolio risk. A good portfolio is designed to maximize the chances that you reach your financial goals and allows you to sleep at night. If those priorities change, there’s a good chance your allocation needs to change as well.