Keep your portfolio aligned with your goals—even as markets shift.
Diversification means spreading your investments across different assets, industries, and geographies. The goal is to reduce risk—when one investment drops, others may rise. Think of it as "not putting all your eggs in one basket".
When do you rebalance?
Time-Based: Every 6-12 months
Threshold-Based: When allocation drifts more than 5-10%
Example: If stocks rise and now make up 80% of your portfolio (vs your 60% target), you can simply sell some stocks and buy more bonds.
When do you rebalance?
Time-Based: Every 6-12 months
Threshold-Based: When allocation drifts more than 5-10%
Example: If stocks rise and now make up 80% of your portfolio (vs your 60% target), you can simply sell some stocks and buy more bonds.
Tip: Without rebalancing, your portfolio can become too risky if one asset class grows too much.
In the scenario below, pretend you started with the following target allocation: 60% stocks, 35% bonds, 5% cash. Because you were unaware of the importance of rebalancing, your portfolio allocation adjusted to the following allocation 10 years later: 80% stocks, 18% bonds, 2% cash.
This is incredibly risky because stocks are more volatile—they have higher long-term potential, but also greater short-term risk.
Let's say there's a 30% stock market crash:
- With your original allocation (60% stocks), your portfolio might drop about 18% overall (60% * 30% = 18% loss)
- However, now that your portfolio is composed of 80% stocks, the same crash causes a 24% portfolio loss (80% * 30% = 24%).
That's a 33% greater loss in portfolio value all because your portfolio drifted into a riskier position over time. Keep an eye on your asset allocation.
This is incredibly risky because stocks are more volatile—they have higher long-term potential, but also greater short-term risk.
Let's say there's a 30% stock market crash:
- With your original allocation (60% stocks), your portfolio might drop about 18% overall (60% * 30% = 18% loss)
- However, now that your portfolio is composed of 80% stocks, the same crash causes a 24% portfolio loss (80% * 30% = 24%).
That's a 33% greater loss in portfolio value all because your portfolio drifted into a riskier position over time. Keep an eye on your asset allocation.
