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Mark Delgadillo: Is Your Financial Life Balanced?

Re-evaluating your portfolio can help ensure your investments are in line with your goals

Balance is vital in every aspect of life. Whether we’re considering diet, work and home life or friends and family, balance is key to success.

Mark Delgadillo
Mark Delgadillo

Your investments depend on a healthy balance as well. Being too heavily invested in one type of asset can weaken your entire portfolio. Rebalancing can help keep your asset mix in sync with your investment strategy.*

Risk Considerations

When you initially invested, you chose a variety of asset types for your portfolio that fit your time horizon, risk tolerance and investing strategy. But market fluctuations can alter the value of your investments and the percentages allocated to each asset class. As time goes by, you may be taking on more or less risk than you’re comfortable with.

Rebalancing your portfolio can restore your original asset allocation. Or, if your feelings about risk have changed, rebalancing can bring your portfolio in line with your current risk tolerance level.

Market Volatility

Although it may be tempting to disregard your investments in a declining market, rebalancing may be even more critical at that point. Make it a priority to evaluate investment performance annually, semiannually or even quarterly so that if your goals, asset allocation or risk tolerance have changed, you’ll be able to rebalance your investments to match your objectives.

Portfolio Tune-Up

When you’re ready to rebalance investments, there are a few options for you to consider.

The first option is to allot a larger percentage of your new investment dollars to the asset class that’s falling behind, and therefore underrepresented in your portfolio. As more money is directed into it, the underperforming asset class will gradually be restored to the percentage of your portfolio that you originally intended.

If you prefer to return your portfolio to its original mix, you may prefer a second option. You can quickly rebalance by selling investments in the asset classes that have lost ground. Although you may be reluctant to sell investments that are thriving, especially to buy investments that aren’t, put rebalancing in perspective. Remember, sticking with your original strategy may be a smart idea. Talk with your financial adviser and determine what option is best for you and your future.

* Rebalancing a portfolio doesn’t ensure a profit or protect against loss in a declining market and may create a taxable event if done outside tax-favored retirement account. Asset allocation won’t guarantee a profit or ensure against a loss but may help reduce volatility in your portfolio. Diversification cannot eliminate the risk of investment losses.

— Mark Delgadillo is a financial advisor for Crowell, Weedon & Co., 111 W. Micheltorena St., Suite 200, in Santa Barbara. He can be reached at 805.618.3160, or click here for more information.

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