The Lazy Investor's Guide to Portfolio Rebalancing

Dear Fellow Investor,

Remember your first time at the gym? You start with a perfect workout plan, but three months later, some muscles are bigger than others, and things look... unbalanced. Your investment portfolio works the same way. Today, we're talking about how to keep it in shape without becoming a financial fitness freak.

What is Rebalancing (In Plain English)

Imagine you started with:

• 70% in stocks (growth muscle)

• 20% in bonds (stability muscle)

• 10% in cash (flexibility muscle)

Fast forward six months: Stocks went up like crazy, and now you're at 85% stocks. Sounds great, right? Plot twist: You're now taking more risk than you planned. That's why we rebalance.

When to Rebalance

I use three triggers for rebalancing:

1. Time-based: Check every quarter

2. Threshold-based: When any allocation is off by 5% or more

3. Gut check-based: When I'm getting either too excited or too nervous about my portfolio

The Lazy (But Smart) Way to Rebalance

Here's my simple process:

1. The Quick Check Once a quarter, I spend 15 minutes to:

• Write down my target allocations

• Check current allocations

• Spot the differences

2. The 5% Rule I only rebalance when something is off by 5% or more. Why? Because tiny adjustments:

• Cost money in trading fees

• Create tax headaches

• Usually don't improve returns much

3. The Two-Step Fix When rebalancing:

• Use new money first (contributions)

• If needed, sell overweight positions and buy underweight ones

Real World Example

Let's say you started with $10,000:

• $7,000 in stocks (70%)

• $2,000 in bonds (20%)

• $1,000 in cash (10%)

After a great year in stocks, you're at $13,000 total:

• $10,000 in stocks (77%)

• $2,000 in bonds (15%)

• $1,000 in cash (8%)

Time to rebalance! But here's the lazy (smart) way:

1. Next time you add money, buy only bonds and cash

2. If not adding money, sell $900 of stocks and split it between bonds and cash

Common Mistakes to Avoid

1. Over-rebalancing Checking daily and making tiny adjustments? You're probably doing more harm than good.

2. Under-rebalancing "My stocks are up, so I'll let them ride!" This is how portfolios become riskier than intended.

3. Forgetting the Big Picture Rebalancing isn't just about percentages – it's about maintaining your risk level.

My Personal Approach

I check my portfolio on the first day of each quarter (and honestly, sometimes forget). If anything's off by 5% or more, I fix it. If not, I go back to living my life. Simple beats complex every time.

What's Next?

Next month, we'll explore how to create an Investment Policy Statement – your personal investing constitution that helps you stay on track.

Keep ascending,

Cash

Disclaimer: InvestorAscent provides educational content only. This is not financial advice. All investing carries risk of loss. Always do your own research and consult qualified financial professionals before investing.