Some financial experts say rebalancing your portfolio is a must-do end-of-year strategy, but I wait every year until my birthday. A recent article by Daily Finance said rebalancing your portfolio is a financial move so important that it could literally save your retirement. After living through several stock market plunges, I have to agree. Rebalancing my portfolio by making sure I'm not too aggressive or too conservative for my age, gives me a sense of calm throughout the year. I choose to rebalance on my birthday because I change my investments or asset allocations based on my age. I follow the rule of "100-minus-your age" to figure out how much to invest in equities. Each year, I get a little bit more conservative. I essentially lock in many of the gains from those crazy days of my youth when I relied mostly on stocks. Whether we have had a recent bull-market rally or stock market crash, I still realign my portfolio with the long-term goal of a secure retirement in mind.
Splitting up my assets
My first step is to check my asset allocation. Each of my online brokerage accounts provide me with graphs and charts that visually demonstrate how I have split my assets across bonds, stocks and cash. Different brokerage accounts use different terms. My 401(k) calls cash "stability of principal," which includes a fixed account. It has another category for bonds and a third for stock-heavy mutual funds that include small, middle, large size companies, specialty funds and global/international stocks. I start out by making sure I have the equivalent of my age divided between bonds and cash. I subtract my age from 100, which provides me with the percentage I can use for stocky-heavy funds or individual stocks.
Buying low and selling high
It's obviously better to sell an investment after it's reached a high. When it comes to my retirement money, I don't get too caught up in the highs and lows of the stock market. I'm purchasing a small number of shares in a variety of mutual funds every two weeks over the course of my 20 to 30-year career. Over the long term, I'm going to be ahead. I reserve the higher-risk stock investments for my Roth IRA account. Now that I'm older, I no longer buy speculative stocks, but I do hold individual stocks within my Roth IRA since my 401(k) doesn't offer that option.
Getting burned by being oblivious
I was burned in 2008 when the stock market crashed because I had failed to rebalance my portfolio. I had 90 percent of my portfolio in stock-heavy or aggressive funds, which would have been fine if I was 10 years old. I had to be patient and wait until the stock market recovered before I rebalanced my portfolio so that I did not essentially lock in losses. Meanwhile, some of the people I worked with who were in their 60s liquidated their accounts when the market was at the bottom. Being patient paid off since I eventually got back to even.
After the stock market recovered, I began paying more attention to my portfolio. I use my birthday as the day to go into all of my accounts and adjust them. Some years I allocate more money for bonds and other years more for the fixed account. I play around with the percentages for large, small or mid-size companies and global or international funds. However, I never stray from the rule of "100-minus-your-age" even though a recent Forbes article listed it as one of 10 terrible pieces of retirement advice. Some experts say the rule of putting 100 minus your age in stocks and the rest in bonds no longer applies because of the low-interest rate environment. However, I think the spirit behind the rule is to be increasingly conservative with your money as you age. Who should be gambling with their retirement at 65?
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