Balance Your Budget and Your Lifestyle with These Five Tips

| January 18, 2024

Many investors take a passive approach to their investment portfolios. They make few, if any, changes to their holdings over a year. While it’s smart to follow a long-term plan and not make changes on a whim, it’s also important to review and rebalance your holdings annually to ensure you maintain your preferred mix of assets. Putting your portfolio on “autopilot” and never checking in means you may lose both your asset allocation and your preferred level of risk – and you may be missing out on growth opportunities, too. The beginning of a new year is a smart time to reassess your portfolio, and below we’ll share portfolio rebalancing tips you might consider strengthening your portfolio in 2024.

Portfolio Rebalancing Tips: Review Your Assets in a Sensible Timeframe

Some investors check in with their portfolios every day. More passive investors may not even check their holdings annually, especially if they haven’t made any changes for a few years. Both of these approaches come with some pitfalls.

Too frequent check-ins may make you feel anxious and could lead to impulsive decisions based on short-term market fluctuations and emotions like fear. Being too lax about checking your portfolio could lead to stagnancy and missing out on long-term investing opportunities.

There’s a reasonable middle ground, though, which we suggest following. One of the most commonly cited portfolio balancing tips is to check your asset allocation at least once a year to make sure it’s consistent with your preferred strategy. In times of economic uncertainty, you may want to review your portfolio more often, though it’s still advisable to play the long game and not make emotional investment decisions not based on strategy.

Remember Your Priorities

The most common framework for investment portfolios is evaluating risk versus reward. Some investors can stomach the changing winds of the investment market more easily and take more chances with their holdings to earn more over time. Others are more conservative, preferring to protect their wealth and make modest but dependable gains over time.

Both strategies can work. However, it’s important to keep them in mind and use your priorities to evaluate whether it’s time for a change. Several portfolio rebalancing tips can help establish a baseline for success. One of the most common is the 70/30 rule, one that’s especially popular with younger or beginning investors. It puts forth that 70% of your investment portfolio should be tied to stocks, mutual funds, and other securities. The remaining 30% is allocated to bonds and less risky investments.

A variation on that plan is to make the stock percentage 100 minus your age. For example, if you’re 25, you would dedicate 75% (100-25) of your investment funds to stocks and 25% to safer instruments. As you grow older, you will likely rebalance your holdings with an eye to greater asset preservation and more consistent income.

Of course, your risk profile may be dependent on factors other than your age, so it’s best to evaluate portfolio rebalancing tips like those above against your own needs and goals. A financial advisor or investment advisor can help you strategize for optimal results.

Factor in Fees and Taxes

Buying and selling in the markets will usually come with fees, and you may owe taxes, too. Without a clear understanding of how taxes and fees are assessed – or, for example, when capital gains taxes are triggered – you could fail to optimize your financial position, or even weaken it.

Consider investing in tax-advantaged accounts that won’t expose you to capital gains taxes or other incurred fees. If you have some investments that generate interest or dividends, consider siphoning those payouts to under-represented asset classes. If you have multiple accounts, you can use realized losses in one to offset capital gains taxes in another.

Become a More Effective Investor with Portfolio Rebalancing Tips

The most important of all portfolio rebalancing tips is to cap your emotions in trading time. Rebalancing is not going on a buying and selling spree; it’s managing risk. Although the world has seen a few examples of getting quick gains through shorting certain meme stocks, that’s very much the exception and not the norm.

In this regard, a financial advisor can help you manage the uncertainty of the markets and provide you with solid portfolio rebalancing tips to increase your financial security. An objective expert can help you maintain financial health and point you to a prosperous new year.

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[1] https://www.investopedia.com/terms/a/assetallocation.asp

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