rebalance an account

rebalance an account

To buy and sell securities so as to maintain a predetermined ratio of selected categories in an investment account. Following an extended bull market in equities, for example, an investor who wishes to own a portfolio of 60% equities and 40% bonds would need to rebalance the account by selling stock and buying bonds.

When is it time to rebalance a portfolio?

Most investment pros I know recommend rebalancing once every year. The theory behind rebalancing is to allow automatic implementation of the age-old axiom "Buy low, sell high." It is important not to get nervous and react to short-term market activity or to rebalance so often that you do not give your winning investments a chance to grow. Despite the axiom and the recommendations of investment professionals, though, some people never rebalance, believing instead that whatever has happened in the recent past will continue indefinitely into the future. So rebalance once a year, and let the markets work for you, not against you.

Mark G. Steinberg, President, Trabar Associates, Boston, MA