TEMPLE, Texas — The all-important portfolio re-balance. It's one of the best tools that we have at our disposal and one of the easiest to use. So the question on this all-new Money Talks is, are you taking advantage of it?
In many of our employee 401k's, we are paid in company stock, and that money sits in that account unless we move it. We may also have accounts that invest in different sectors of the economy. While one performs well, another could be down.
It's our money, and our investment, so we need to pay attention to it. The question is, how much? Financial planner Rolandus Johnson had an answer.
"It's also one of the most important tools that we have as investors and so the conversation that I have there is the rebalance is important because you've got your more aggressive funds and they are going to grow and the aggressive investments are going to grow a lot faster than your more conservative, and at some point in time whatever you've allocated is going to be off," said Johnson.
So, to avoid being "off" as Johnson says, how often would a professional money manager say you need to rebalance?
"You always want to rebalance at least once a year is kind of what I tell my clients," said Johnson. "You know, once a year when we get together and talk about how things are going. But that rebalance is key because it's inevitable to hit down times, and when you hit down times, if a lot of your portfolio has shifted, that could leave you wide open for a lot of loss so that rebalance is very key, albeit small, but it's a very key tool when you are investing or saving money for the future."
So what if a fund hasn't stopped going up, or another that you might move into might still be trending down?
"I mean it's not like you are losing anything when you rebalance," Johnson said, "You are just taking what you have earned and kind of moving it back and just kind of saying 'hey, let's get back in line and just put things back straight'. So, I know we've had a tough 2021-2022, it's been tough but that rebalance would have mitigated some of those losses, and I saw some big ones in my time."
If you prefer to be more hands-on with your account or if you want to put in more effort, Johnson says that's okay too!
"Once a quarter sometimes is really good, just depending on the economic environment you may want to look at it once a quarter," said Johnson, "But I think at least once a year if you're one of those, you know, set it and forget it, you know money is going in, at least take a look at it once a year."
And in case you are curious, the S&P 500's average return over the past decade has come in at around 12.39%, beating the long-term historic average of 10.7% since the benchmark index was introduced 65 years ago.
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