Q. How often and how should I rebalance my portfolio?
A. If you follow a disciplined approach to build and maintain your investment portfolio, here are 3 tips you can use to help you rebalance your portfolio:
1. Review your portfolio semiannually
You don't have to adjust every half year, but it's a good idea to look at your overall portfolio - 401K accounts, individual brokerage accounts, etc. at least semiannually.
2. Rebalance when asset mix is off a lot
How much is a lot? While it could vary with each investor's risk tolerance, it's a good idea to take some profit off the table when an asset class is 5% or more than your target level. Sure, it may eat into your return, but it also reduces your risks.
3. Harvest tax loss
Rebalancing also involves harvesting some losses to offset your gains. While there is an IRS wash-sales rule that bars you from buying the same or a "substantially identical" investment within 30 days or a sale, if you do a semiannual rebalancing instead of year-end rebalancing, you should have more than 30 days to reconstruct your portfolio and avoid the wash-sales rule.
A. If you follow a disciplined approach to build and maintain your investment portfolio, here are 3 tips you can use to help you rebalance your portfolio:
1. Review your portfolio semiannually
You don't have to adjust every half year, but it's a good idea to look at your overall portfolio - 401K accounts, individual brokerage accounts, etc. at least semiannually.
2. Rebalance when asset mix is off a lot
How much is a lot? While it could vary with each investor's risk tolerance, it's a good idea to take some profit off the table when an asset class is 5% or more than your target level. Sure, it may eat into your return, but it also reduces your risks.
3. Harvest tax loss
Rebalancing also involves harvesting some losses to offset your gains. While there is an IRS wash-sales rule that bars you from buying the same or a "substantially identical" investment within 30 days or a sale, if you do a semiannual rebalancing instead of year-end rebalancing, you should have more than 30 days to reconstruct your portfolio and avoid the wash-sales rule.
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