Rebalance your portfolio regularly from "summary" of All About Index Funds by Richard A. Ferri
Regularly rebalancing your portfolio is crucial to maintain your desired asset allocation and risk level. Asset classes don't move in sync with each other, causing your original mix of stocks, bonds, and cash to drift over time. This drift can lead to unintended consequences and may expose you to more risk than you are comfortable with. When you rebalance your portfolio, you are essentially selling assets that have performed well and buying assets that have performed poorly. This may seem counterintuitive, but it is a disciplined approach to buying low and selling high. It helps you stay true to your long-term investment plan and prevents you from making emotional decisions based on short-term market movements. There are different ways to rebalance your portfolio, such as setting a specific time interval (e. g., annually) or rebalancing when your asset allocation deviates from your target by a certain percentage (e. g., 5%). Whichever method you choose, the key is to stick to your plan and not let market volatility sway you from your strategy. Rebalancing can also have tax implications, especially in taxable accounts. Selling investments that have appreciated may trigger capital gains taxes. However, in tax-advantaged accounts like IRAs or 401(k)s, you can rebalance without worrying about taxes until you withdraw the money in retirement.- Regular rebalancing is a simple yet powerful tool to keep your investments in line with your goals and risk tolerance. It helps you stay disciplined, avoid emotional decision-making, and ultimately improve your chances of long-term investment success.
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