Financial Briefs

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Rebalancing Plays An Important Role In Producing Returns

The U.S. equity market has more than doubled in value over the past few years. Has your portfolio been rebalanced to take this change into account?

Diversification and asset allocation require periodic rebalancing. That's because 90% of returns are attributable to asset class choices rather than to specific securities.

Let's say your portfolio originally contained 50% U.S. stocks, with the rest split among bonds, real estate, and other alternatives. Between March 2009 and March 2013, the Dow Jones Industrial Average of U.S. stocks rose 129%, following the historic downturn of 2008. If you haven't made any adjustments, the value of the stocks in your portfolio likely has risen well past 50% of the overall value.

It's important to bring that share back down because that increased emphasis on equities has added risk to your portfolio. Stocks eventually will have a down year, and if they make up too great a share of your portfolio your losses could be proportionally higher than what you expect when the market drops.

When it comes to portfolio design, getting the recipe right is more important than the ingredients you choose. We will help you get the right mix of asset classes and ensure that your portfolio is rebalanced regularly to keep that mix intact, while taking into account your risk tolerance, changing situation, and the need to keep investment costs low.