How to Rebalance Your Portfolio

A risk of this long-running bull market: You may have more money in stocks than you should.

The long bull market has left many investors with a nice problem: a lot of unrealized profits in stocks. Over the past three years alone, through August, Standard & Poor’s 500-stock index gained an average of 16.1% a year, compared with 9.5% annually over the past 15 years. The hot streak means the portion of your assets in stocks, compared with other investments, may exceed your risk tolerance. The solution is to rebalance your portfolio by selling an amount of stock necessary to bring your stock portion down to a comfortable level.

Many financial pros advise rebalancing once a year. Start by totaling up all of your stocks, bonds, cash and other securities. Include assets in retirement accounts and in taxable accounts. If you own mutual funds that hold a mix of stocks and bonds (such as target-date funds), check the most recent fund report to see the breakdown of assets. Once all assets are accounted for, calculate the percentages for each asset type. (You can also use online services such as those offered by financial advisory firms Empower and Betterment for this.)

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

To continue reading this article
please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

Tom Petruno
Contributing Writer, Kiplinger's Personal Finance
Petruno, a former financial columnist for the Los Angeles Times, is an independent investor, writer and consultant. He lives in L.A.