From Morningstar:

The article discusses the importance of portfolio rebalancing and the need to adjust the asset classes if the last portfolio overhaul took place either one, three, or five years ago. The author emphasizes specific tactics that need to be employed for each period when reallocating assets from stocks to bonds, domestic to foreign equities, and value to growth stocks.

For those who haven’t rebalanced their portfolios in five years, the overall equity exposure would have expanded from 60% to 70.1%, significantly above the original level. This exposure resulted in a significant impact on the portfolio’s risk profile, suggesting reallocation of assets from stocks to bonds is needed.

For those who haven’t rebalanced their portfolios in five years, the overall equity exposure would have expanded from 60% to 70.1%, significantly above the original level. This exposure resulted in a significant impact on the portfolio’s risk profile, suggesting reallocation of assets from stocks to bonds is needed.

For those who haven’t rebalanced their portfolios in three years, the scenario reveals that equities grew to about 67.4% of total assets, while bonds were more than seven percentage points below the target level. Consequently, some rebalancing is necessary, particularly cutting back on growth stocks and deploying assets into bond funds.

For those who haven’t rebalanced their portfolios in one year, the article mentions the need to prune back equity exposure, especially from the growth side, and redeploy some assets back into bonds. The article emphasizes the importance of understanding one’s portfolio’s current asset mix and how to remodel it if certain areas have drifted away from target levels.

In conclusion, the article underscores the importance of portfolio rebalancing as a tool for controlling risk and not only for improving returns. Reversion to the mean is a powerful force, and even long-lived trends don’t last forever. Therefore, rebalancing can help avoid getting caught flat-footed when market trends reverse course.



Read more: You Probably Need to Rebalance