You could realign your portfolio once a quarter, once every six months, or maybe once a year. There are two general approaches to how often you should realign your portfolio. The simplest approach is based on time. This approach is not only simple, but also removes psychological factors that can cause investors to make changes to their portfolio in the event of extreme market fluctuations
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How often investors decide to realign their portfolios can vary. Some rebalance monthly or quarterly, while others rebalance every six months or annually. You can realign your portfolio based on either the calendar or your investments. Many financial experts recommend that investors realign their portfolios at regular intervals, for example every six or twelve months
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The advantage of this method is that the calendar reminds you when you should consider rebalancing. In addition to keeping your risk under control, rebalancing can also improve your investment returns if you rebalance two or more asset classes with similar long-term return expectations. Rebalancing is about bringing your asset allocation of the amounts in your portfolio that you have in various asset classes such as stocks, bonds, real estate, or even crypto back into line with your investment plan. If the investment return in one investment category falls, you are able to counteract your losses in that investment category with better investment returns in another investment category
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For example, under certain circumstances, it may be a reasonable asset allocation strategy for a twenty-five-year-old to invest for retirement, or a full investment in cash equivalents if a family saves up for the down payment on a house. In the words of the famous saying: Conservative investors hold the bird in their hands, while aggressive investors “look for two in the bush.” If you invest in narrowly focused mutual funds, you may need to invest in more than one mutual fund to achieve the desired diversification. The plan could have been to invest 80% in stocks and 20% in bonds, for example, but this allocation resulted in a shift to 85% stocks and 15% bonds due to market returns, as the bonds you bought lose value
and the stocks appreciate.
However, you should still look at the underlying holdings of the fund and compare them with the funds you hold in your IRA or brokerage account.
