Retirement Planning

Tips on Rebalancing Your Portfolio in Your 30's, 40's, and 50's

Rebalancing your account serves as a wellness check-up for your investments. Typically comprised of US and foreign Stocks and Bonds, REITS, and cash reserves, your portfolio’s asset allocation determines your overall exposure to risk and has the largest impact on your returns.

Stocks are generally viewed as a high-risk, high-return asset. Bonds and treasury funds, on the other hand, are typically less volatile; meaning they’re less risky, more “safe”, and will thus likely produce smaller returns.

It’s vital to rebalance your account at least once a year. Our clients’ accounts are generally rebalanced quarterly. Rebalancing realigns your portfolio to match your investment targets; an unchecked portfolio can seriously impact your overall portfolio risk volatility and long-term returns.

Automatic rebalancing is a great opportunity to stay emotionally disconnected from your portfolio and allow your account to thrive by process. Rebalancing requires you sell high, and buy low. Thus, when a particular investment performs well and becomes a larger part of the portfolio, you sell part of it while it is favorably priced and buy assets that have become cheaper.

Leading investment research firm Morningstar suggests setting parameters for when to rebalance. Perhaps resetting when core asset classes shift as much as 3-5 percent.

The larger portion is sold to realign the portfolio and with the proceeds you purchase the part of the portfolio that has done the worst or become proportionally smaller.

To show you just how much rebalancing can affect your overall portfolio value, take a look at the graph below. With the same $10,000 investment, a rebalanced account ends at $97,000 while an unbalanced account ends at $88,000. All else equal, that’s a nearly $10,000 difference.

Just as your needs, wants, and goals shift with each passing decade, so should your asset allocation. Your investment strategy in your 30’s will likely be significantly different than in your late 50’s. The goal is to adjust your allocation accordingly.

The older you get the less attractive high-risk, potentially high-reward stocks are and the more attractive bonds, with stable returns, seem. The last thing you want is to be a few years away from retirement and have your portfolio lose substantial value due to swings in the stock market.

The key is to ensure you don’t become overexposed or underexposed to either equities or bonds prematurely. As equities likely increase in value over time while bonds stay relatively fixed, your account holdings will naturally shift if left unchecked.

In your 30’s: it’s advised to invest fairly aggressively to use time and the power of compound interest to grow your account. You still have 20+ years to weather market downfalls.

In your early 50’s, pay close attention to how markets are performing. Your 40’s are often considered your “peak” earning years, therefore it’s important to keep investing aggressively but to begin shifting asset allocation to a 60/40 split of equities to bonds.

In your late 50’s/early 60’s, Assess where you are. How close are you to retirement and how much volatility can you tolerate? This may be a wise time to think about starting to shift your portfolio to hold relatively higher percentage of short-term bonds as you will have less time to recover from big falls in the global stock market.

Martin Watkins is the CEO and Certified Financial Planner® at the Salt Lake City based wealth management firm, TrueNorth Wealth.
His team directly manages $350 million and are Investment Fiduciaries on over $10 billion.  

TrueNorth Wealth is a financial and wealth management firm specializing in personalized financial guidance to individuals and businesses.

For a free financial consultation, please call TrueNorth Wealth: 801-274-1820 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

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