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Portfolio Rebalancing

March 31, 2017
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If an investment is successful, many people assume that they should stick with it and watch it grow. However, that is not always the best strategy if you’re looking to have a well-rounded, successful portfolio that fits the criteria you originally lay out, including the risk profile and composition of your portfolio. In fact, the longer you let your investment portfolio rest, functioning without evaluating the changes it undergoes each year, you may be surprised just how far you’ve gone from your original investment portfolio. At DunnCreek Advisors, we want to help you ensure that you’re making productive changes to your investments, so we provide St. Paul, MN investment advising services to be sure you have access to the information you need to make smart investment choices, starting with rebalancing your portfolio.

Why Rebalance Your Portfolio?

Many people begin determining their investment strategy by evaluating their time horizon, risk tolerance, and specific investment goals before moving on to pursue their objectives. The problem that arises is that not all investments have the same return, and so the balance of investments will shift, over time, as different investments provide differing returns. Once you let your investment portfolio set without making alterations or even monitoring its growth, your portfolio will likely have changed significantly. Because of these changes, over time, the performance of investments can cause the intent and risk profile of a portfolio to shift. This is known as “risk creep,” when the risk profile has shifted over time.

What is Portfolio Rebalancing?

Rebalancing an investment portfolio involves returning a portfolio to its original risk profile. When you rebalance a portfolio, you’re able to ensure that your portfolio meets your goals and time horizon, allowing you to better meet your overall objectives. Rebalancing can be done in two ways: using new money to balance out assets to their original ratios, and selling enough of the “winning” investments to buy more of the underperforming assets. Although this may sound counterintuitive, it will encourage you to buy low and sell high.

Benefits of Rebalancing Investment Portfolios

If you’re still not sure whether rebalancing your portfolio is the right decision for you, it may help to think of the benefits of portfolio re-balancing. If you’re someone who has a very specific risk tolerance threshold, re-balancing your portfolio can help you stick to that risk threshold. Without rebalancing, you will find that your portfolio is vulnerable to risk creeping. In addition to preventing risk creep, rebalancing your portfolio will also help you ensure that you’re making smart investment sales and purchases and investing enough of your new money or savings into good investments. One of the major benefits of these portfolio rebalancing techniques is that they have positive effects regardless of the market conditions. That means that, no matter what your investments look like or how the investment market looks, rebalancing to match your risk tolerance will always help maintain a solid portfolio. Contact DunnCreek Advisors today at 612-436-3770 or rdunn@dunncreekadvisors.com, and find out how our St. Paul, Minnesota portfolio rebalancing advisors can help you.