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How Important is Rebalancing My Portfolio?

Q  How important is re-balancing my portfolio and how often should I do this?

A   Unless 100 percent of your money is invested in a single fund or financial instrument, the various pieces of your portfolio will perform differently over time, hence accumulation rates will vary.  For example, let's say your goals, time horizon, and risk tolerance call for a 50-50 ratio of equity investments to fixed-income/safer investments.  You may find that over several years time, your stock mutual funds may have grown faster than your bond/annuity funds.  Due to appreciation, your overall equity stake may have grown to 60 percent of your total portfolio.  To maintain your original asset allocation, you should re-balance by gradually shifting some money from stock funds to bond/annuity funds.  Additionally, to ensure continued balance and diversification, investors should perform this type of re-balancing act at least once a year.