Portfolio Rebalancing

The Importance of Portfolio Rebalancing

Over time, your portfolio asset-allocation can veer off track because of market ups and downs. As illustrated in the image below, a strong stock performance can cause a simple 50/50 portfolio mix to become unbalanced over time. After 30 years, what was once a 50% allocation to stocks now sits at 66%—quite a jump. Moreover, not only does the portfolio’s allocation change, but the portfolio’s risk also changes, rising from 9.1% to 11.4%.

If your goals or risk tolerance have not changed, your allocation likely shouldn’t either. While market movements over the long-run can shift your portfolio allocation, markets can sometimes move significantly over short-term periods of time, causing your portfolio’s allocation to move out of line.



But why would anyone want to sell investments that have done great in order to purchase laggards? While rebalancing might seem odd at first, it is all about risk control. If more and more of your total portfolio winds up in one investment, you could risk losing a lot should that investment stumble. This practice of pruning your high performing investments and reallocating those dollars to buy more of the asset classes who haven’t performed as well is known as rebalancing.


TradeKing Advisors employs a rebalancing method known as threshold rebalancing. It’s a systematic, disciplined process that can help remove emotion from the investment process. Our rebalancing software scans our clients’ portfolios on a daily basis for opportunities to rebalance, and better yet there’s no additional transaction cost to you. Automated rebalancing is just one of many potential benefits of a portfolio managed by TradeKing Advisors.



Keep in mind that an investment cannot be made directly in an index, and past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. The sale of an investment for the purposes of rebalancing may be subject to taxes. Risk is measured by standard deviation. Standard deviation is a statistical measure of the extent to which returns vary from the expected returns. Government bonds are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest. Stocks are not guaranteed and have been more volatile than bonds. Source: Stocks—Standard & Poor’s 500®, which is an unmanaged group of securities and is considered to be representative of the stock market in general; Bonds—five-year U.S. Government bond. Used with permission. © 2014 Morningstar, Inc. All rights reserved.

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