Rebalancing Your Portfolio

At FMA, we have always advocated written Investment Policies. Every Investment Policy gives us a blueprint for ongoing management and spells out primary account parameters and objectives.

Your Investment Policy is based on investment constraints, such as income needs, time horizon, tax or legal considerations and personal preferences. Taking these constraints into consideration will create a diversified portfolio that achieves a comfortable balance between risk and return.

As you’ve read in previous editions of The Financial Advisor, changes to your personal circumstances may warrant adjustments to your Investment Policy. In turn, the ever-changing landscape investment environment will periodically require changes to your portfolio in order to keep your investments in step with your Investment Policy.

The prospect of interest rates increase, as the economy improves, will have an impact on the bond and equity market. New tax policy may make dividend-paying stocks more attractive to investors. Ignoring market changes can lead to an unbalanced (and under performing) portfolio.

Each portfolio, which holds growth, value, and income assets, should be rebalanced periodically, to better reflect the Investment Policy. Rebalancing your portfolio may require selling assets that are outperforming the indices, in order to take profits. Buying assets, which are under performing the indices, may also be indicated. Both adjustments will help to reduce portfolio volatility and provide greater long-term returns.