A retiree’s financial goals, risk tolerance, and time horizon generally affect the desired asset allocation in an investment portfolio. However, those initial goals and risk considerations can change during a retiree’s golden years. Additionally, the market is constantly in flux, shifting the proportions of assets a person holds. It may make sense to rebalance the assets inside a portfolio regularly.
Rebalancing a portfolio can be thought of like the routine upkeep of your investments. For example, if a portfolio has an asset allocation of 70% bonds and 30% stocks and the stocks do well during a year, they might make up a higher percentage of a portfolio than planned.
By the end of the year, the asset allocation may be 65% bonds and 35% stocks. The investor may want to rebalance by selling stock and buying more conservative assets, such as bonds, to ensure the portfolio’s asset allocation is in line with their goals. Alternatively, they may use other income to make new bond investments.
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