Most of us never would have predicted that we would be living through a pandemic in 2020. It has quite literally changed how we live. Schedules have changed, work priorities have shifted, how we handle our day-to-day activities is nothing like before, and moreover, finances may feel uncertain. Planning is not what it was six months ago, and your goals have likely changed due to this.
If you are feeling overwhelmed about what your financial future brings, and if you are unsure if your financial goals are still valid, it might be time to rebalance your portfolio. Rebalancing can help you reevaluate your investment strategy so you can take the market downturn and benefit from the recovery.
Before deciding whether rebalancing is right for you, it might help to understand the process. Here are 3 steps to sum it up:
- Assess your goals and determine your ideal asset allocation.
- Review the current allocation of your portfolio and how it is performing.
- Buy and sell assets to rebalance your portfolio.
To rebalance a portfolio means to buy and/or sell assets to keep your portfolio at a desired level of asset allocation or risk and also take advantage of tax saving opportunities. An advisor will usually recommend rebalancing if they see a difference from the original asset allocation that is larger than their client’s choosing or if their client’s goals have changed. This can provide the opportunity to sell high and buy low while taking the profit from the outperforming investments and reinvesting them into the underperforming investments.
If you are in a position where your asset allocation changed substantially, and/or you have shifted your goals due to a life change (e.g., you are retiring soon, you have inherited money, you have taken a major loss in income), then it is likely a good time to consider rebalancing your portfolio.
Given this unpredicted global pandemic, we all have had a chance to reflect on various aspects of our lives. In most cases, many of us are reconsidering important goals and values much differently, and chances are you have changed some of your financial goals. If you are generally feeling overwhelmed or uncertain, it is a good time to contact your financial advisor. Financial advisors can assess if you are well positioned for market volatility or if rebalancing your portfolio is necessary to adjust for your new plans.
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