Rebalancing & Reallocation

Developed correctly, your asset allocation and diversification strategies—the components of your investment plan—are tailored to address your short- and long-term investment goals. Therefore, you should constantly monitor your portfolio to make sure your investments remain aligned with your investment plan.

Rebalancing involves periodically adjusting (typically at annual intervals or when market movements warrant) your investment mix to make sure your portfolio allocations stay true to your objectives, time horizon and tolerance for risk. For example, market performance can cause your asset-class weightings to deviate from your original target allocations. Rebalancing takes profits from your outperforming securities and puts them back to work in your other investments, thereby keeping your risk/return profile intact.

Reallocating involves adjusting your asset allocation and/or diversification strategies to address new or changing goals. For example, as you near retirement and want your portfolio to become more conservative, you may want to reallocate a portion of your stock holdings into fixed-income investments.

Investment considerations: The use of asset allocation, diversification and rebalancing does not guarantee a profit nor protect against a loss.