REBALANCE YOUR INVESTMENT PORTFOLIO: The surest step to financial independence is indeed smart investments. However, when it comes to sustaining and maintaining your investment, that is when rebalancing and adjusting your investment portfolio comes into play. 

A schedule for rebalancing your investment portfolio is as vital as every other aspect of your investment plan, especially for long-term investment. Before we detail what it means to adjust and rebalance your investment portfolio, it is essential to note that it is a relatively straightforward procedure that you can execute by yourself.

What does it mean to rebalance your investment portfolio?

While creating an investment portfolio, one of the steps involved is appropriate asset allocation. If your asset allocation, you might allocate 60% of your funds to stocks and 40% to real estate, and at this point, your portfolio is balanced. However, due to constant changes in the values of your assets, your portfolio becomes unbalanced. This is when you will need to rebalance your portfolio to reach its full potentials.

Rebalancing your investment portfolio is a process that involves the regular maintenance of your investments to prevent unexpected loss and to maintain your desired level of risk. Your investment portfolio is like your car that requires scheduled servicing to avoid spoilage.

Usually, when rebalancing, you sell and buy some assets so that the asset allocation in your investment plan is resolved with your expected level of returns and risk tolerance.



How to rebalance your investment portfolio

Rebalancing your investment portfolio depends on several factors that include your transaction costs, personal decisions, tax considerations, account type, and capital gains or losses. If you receive high returns on all your investments, you should rebalance your portfolio at least three times a year. However, if you receive a significantly low amount of returns, you can rebalance your portfolio once a year. Also, your lifestyle can affect your asset allocation, which will influence your rebalancing schedule in several ways. That is why it is advisable to be conservative in your spending, especially when your investment portfolio is not well-developed.

There are three major steps involved in rebalancing your portfolio, and they are appraised below.

Keep records

Keeping records of all your assets is the first step of rebalancing your portfolio. First, you have to decide on an asset-allocation strategy that suits your investment goal. Then you can go ahead to purchase the profitable financial securities in each asset class. Keep a record of the value of all the financial securities you purchased and calculate the total. With this data, you now have a historical record of all your investments so that you can easily compare them with updated values at a later date.


On a scheduled date in the future, review the current value of each security in your portfolio. Calculate the weightings of each asset by dividing the present value of each asset class by the total current value of your portfolio. Compare and contrast the value from the division with the original weightings. If there is no significant difference or no difference, it is advisable to minimize buying and selling (passive investment). However, if there is a significant difference, there is no need for liquidation, then it will be better to remain active.


After recording and reviewing your portfolio, if you discover that the changes in the weightings of your asset class have opened your portfolio to risks, recalculate your weightings. To recalculate your weightings, multiply each original weightings of your asset class by the current total value of your portfolio. The value gotten from your calculation is the amount of funds you need to reinvest to revert or maintain your original asset allocation.

Some investors usually decide to sell overweight assets to make up for underweight assets. While this might seem like an easy way, they might want to consider the tax implication. To avoid capital gain taxes, invest fresh funds in underweighted assets and stop investing in overweighed assets. If you keep up with this, your portfolio will balance itself after a while.


Rebalancing is an essential part of your investment plan. Through rebalancing, you can maintain your investment portfolio; you get to figure out your strengths and weaknesses and keep your portfolio’s risk level at a level you can conveniently maintain. If you keep up with the rebalancing of your investment portfolio, you will make smarter investment decisions and experience a significant increase in your gains. You have to be cautious in rebalancing your portfolio to prevent excessive taxable income in taxable accounts.

To read more on investment portfolios and creating investment plans, visit croft financials.

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