What Is Portfolio Rebalancing?

For over 20 years, financial advisor Jeff Speicher has addressed his client’s financial needs using his experience in financial markets to deliver personalized investment services. In his current role, he guides Speicher Financial Group as the managing director and financial advisor. Jeff Speicher specializes in offering his clients sound portfolio management strategies.

Portfolio management strategies are used by professionals to achieve long-term financial objectives and provide risk tolerance. Rebalancing, a portfolio management strategy, involves buying and selling portions of a client’s portfolio in order to regain an asset class back to its initial state. Rebalancing becomes necessary in the event an investor’s strategy or risk tolerance level changes.

For instance, if a target asset allocation was 50 percent stocks and 50 percent bonds, rising prices of stocks can increase the portfolio’s stock weighting to 70 percent stocks and 30 percent bonds. In this case, an investor may decide to sell some stocks and invest in bonds to regain the initial asset allocation of 50/50.

Portfolio rebalancing aims to protect an investor from overexposure to undesirable risks. Measures are also put in place to ensure the risk level associated with an asset remains within an investor’s desired margin. Rebalancing gives investors an opportunity to sell assets at high prices and buy at low prices. While there’s no specific schedule for rebalancing, it is advisable to review allocations at least once per year.