Mutual Fund Basics
It's a good idea to review your asset allocation at least once a year as part of your ongoing portfolio management.
Your investments will gain and lose value as the market rises and falls. Because some investments will grow faster than others, you may need to move money from one investment to another in order to maintain the same asset allocation percentages you originally chose. See the example below.
In this example, to get back to your original allocation, you’d need to move money from your bond funds into growth and growth-and-income funds. That’s rebalancing.
If you’re happy with your investment strategy, you’ll want to make sure the proportions of funds in your portfolio stay the same. If your allocation has shifted over time, you may want to adjust it to stay on your original course.
Remember, your decision to rebalance should be based on your long-term investment strategy, not market results on a certain day. Portfolio rebalancing is not setting out on a new investment strategy. Rather, it is a way to stay committed to your original strategy.
Many advisors suggest that you should consider rebalancing if the funds in your portfolio have strayed more than 5% to 10% from your original allocation, as illustrated in the pie charts above.
It’s a good idea to review your asset allocation at least once a year. Many investors choose an easy date to remember — such as their birthday — as their annual portfolio checkup date. If the markets are changing significantly, you may want to rebalance quarterly.
Before you rebalance, ask yourself if your investment objectives, time horizon or personal circumstances have changed substantially. Your investment mix should always accurately reflect your current needs, goals and plans.
It’s a simple three-step process:
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.