Risk Management, Trading & Portfolio Strategies

Is it time to rebalance your portfolio?

As we approach a new year, it may be time to reallocate your assets.

As we approach a new year, it may be time to reallocate your assets.

As the new year approaches, you may be thinking about what changes you will make to your life and finances in 2014. Reallocating your assets is activity that many investors engage in toward the end of the year. While rebalancing your portfolio can help reduce risk, some investors may find it hard to part with certain stocks, especially after such a strong year on Wall Street. 

The Dow and S&P's record highs this year have resulted in many traders having asset allocations outside of their desired ranges. Chad Norfolk, a certified financial planner at FAI Wealth Management, told CNBC that many of his clients have been reluctant to rebalance their portfolios

"It could be really hard for people to do this year," Norfolk told the news outlet. "Stocks have done great against just about every other asset class. But it's part of the discipline you need in investing."

Barry Glassman of Glassman Wealth Services added that selling stocks that have great potential may seem to be against human nature for some investors, but advised anyone who is on the fence about reallocating their assets to keep the following points in mind: 

  • Diversification is necessary – Decades of research has shown that having a diverse portfolio of assets can compound wealth and reduce volatility. 
  • Keep transaction fees in mind – The necessity of rebalancing on a monthly, quarterly or annual basis is up to your discretion, but remember that transaction costs can add up.
  • Tax liability may be an issue – You shouldn't let taxes drive your investing decisions, but remember that capital gains from selling appreciated stocks may push you into a higher tax bracket. 

If reallocating your assets is on your 2014 to-do list, be sure to use SmartStops' portfolio risk management software to protect yourself from market volatility. 

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