Rebalance regularly from "summary" of The Bogleheads' Guide to Investing by Taylor Larimore,Mel Lindauer,Michael LeBoeuf
One of the key principles of successful investing is to regularly adjust your portfolio back to its original asset allocation. This process, known as rebalancing, ensures that your investments stay in line with your risk tolerance and long-term financial goals. By rebalancing regularly, you are essentially selling high and buying low, as you are selling off some of your outperforming assets and buying more of your underperforming assets. Rebalancing can help to control risk and prevent your portfolio from becoming too heavily weighted in one asset class. For example, if stocks have been performing well for an extended period, your portfolio may become too heavily weighted in equities, exposing you to more risk than you may be comfortable with. By rebalancing, you can sell off some of your stocks and reinvest the proceeds in other asset classes, helping to bring your portfolio back in line with your target asset allocation. It's important to set a specific schedule for rebalancing your portfolio, whether it's annually, semi-annually, or quarterly. Stick to your schedule and avoid making emotional decisions based on short-term market fluctuations. Remember that rebalancing is a disciplined approach to investing that can help you stay the course during turbulent times in the market. While rebalancing can help to control risk and maintain your target asset allocation, it's important to consider the costs associated with buying and selling investments. If possible, try to rebalance in a tax-efficient manner by using tax-advantaged accounts like IRAs or 401(k)s. Additionally, consider using cash inflows such as dividends or new contributions to rebalance your portfolio, rather than selling off investments. By rebalancing regularly, you can stay on track with your long-term financial goals and maintain a diversified portfolio that aligns with your risk tolerance. Stay disciplined, stick to your rebalancing schedule, and avoid making emotional decisions based on short-term market movements. By following a consistent rebalancing strategy, you can increase your chances of long-term investing success.
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