Rebalance Your Portfolio With Mark Biller

Mark Biller is executive editor at Sound Mind Investing, an underwriter of this program. 

 

WHAT DOES IT MEAN TO ALLOCATE YOUR PORTFOLIO OR REBALANCE IT?

Mark Biller explains that asset allocation refers to the distribution of investments across various asset types, like stocks and bonds. Portfolio rebalancing is the process of adjusting the portfolio back to its target allocation. This is necessary because different investments perform differently over time, causing the portfolio to drift from its intended allocation. Rebalancing involves selling assets that have grown beyond their target percentage and buying those that are underrepresented to maintain the desired risk/reward balance.

• Asset allocation involves deciding how much to invest in different asset types like stocks and bonds.
• Portfolio rebalancing is adjusting the investment mix back to the target allocation.
• Rebalancing ensures the portfolio stays aligned with the investor's risk tolerance and goals.

HOW DOES ONE DETERMINE THE APPROPRIATE TARGET ASSET ALLOCATION?

The appropriate target asset allocation depends on the investor's goals, risk tolerance, and time until retirement. A thorough risk assessment is typically one of the first steps in investment planning. For example, someone with many years until retirement can usually afford more risk compared to someone closer to retirement. This assessment is crucial to arriving at an appropriate asset allocation target.

• Determining the right asset allocation involves considering personal goals, risk tolerance, and time until retirement.
• Younger investors can typically afford more risk than those nearing retirement.
• A detailed risk assessment is essential in setting the right target allocation.

WHAT ARE THE BENEFITS OF REBALANCING AND HOW OFTEN SHOULD IT BE DONE?

Rebalancing aligns the investor's portfolio with their ideal mix of risk versus reward. It also helps in achieving the goal of buying low and selling high by adjusting investments based on their performance. While conventional wisdom suggests rebalancing once a year, the key is to ensure the portfolio remains close to the target allocation. This process can be more straightforward for those with fewer asset types and more complex for diversified portfolios. It's also often a service provided by financial advisors.

• Rebalancing aligns the investment portfolio with the investor's ideal risk-reward mix.
• It helps to buy low and sell high by adjusting based on performance.
• Regular rebalancing, often yearly, is recommended to maintain the target allocation.

WHAT ARE TARGET DATE FUNDS AND HOW DO THEY RELATE TO REBALANCING?

Target date funds, increasingly popular in retirement plans, automatically handle asset allocation and rebalancing. These funds have a year in their name indicating the target retirement date, and the fund's allocation of stocks and bonds is managed accordingly. While convenient, it's important to ensure that the fund's assumptions match the investor's specific needs, as they can sometimes be more conservative than ideal. Choosing a fund with a different target year can adjust the asset allocation to better suit personal preferences.

• Target date funds automatically manage asset allocation and rebalancing for retirement.
• They may be more conservative, so it's important to choose one that aligns with personal goals and risk tolerance.
• Adjusting the target year can help match the fund's allocation to the investor's preferences.

You’ll find a more detailed guide at Sound Mind Investing’s website. It’s called “SMI’s 2024 Rebalancing Guide.”

ON TODAY’S PROGRAM, ROB ANSWERS LISTENER QUESTIONS:

• I have enough savings to pay off my car loan with a balance of $12,000 and an interest rate of 3.84%; should I pay it off now while still having savings left?
• As I retire today at 65 and a half and plan to keep working, will my Social Security benefits increase if I continue working until 70?

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Remember, you can call in to ask your questions every workday at (800) 525-7000. Faith & Finance is also available on Moody Radio Network and American Family Radio. You can also visit FaithFi.com to connect with our online community and partner with us as we help more people live as faithful stewards of God’s resources.

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