When to Re-balance Your Portfolio

When to Re-balance Your Portfolio

When should you re-balance your portfolio?  Or maybe the question should be:  Should I ever re-balance my portfolio?

Re-balancing means that you are going to sell all or most of your positions at a specific point in time and pick new investments that offer less risk than your present holdings.

When to re-balance your portfolio depends on your investment philosophy. Some investment advisors advocate quarterly re-balancing while others suggest it is only necessary once a year. An investment program like Dynamic Investor Pro may offer you the opportunity to set up automatic re-balancing at predetermined times like monthly, quarterly, semi-annually, or yearly.

Rebalance investment portfolio or Switch Strategies

The advantages of re-balancing include:

  • Poor performing positions are eliminated.
  • Positions with greater potential, either for minimal risk or greater profit are purchased.
  • You can balance out the value of your positions equally so your diversification level remains constant and equal.

Potential disadvantages include:

  • You could sell a highly profitable position that is still growing.
  • Your trading expense may grow needlessly.
  • Automatic re-balancing at specific times may turn out to be the wrong time to sell.

An alternative to complete re-balance:

It’s not a bad idea to take a look at your portfolio, trading strategies, and positions annually or perhaps even every six months to see how your chosen strategies are doing compared to trading strategies you are just watching. In other words perhaps your re-balance should be to switch strategies (and positions) to those trading strategies that are presently leading the pack.

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