8. Building an Investment Portfolio

d. Rebalancing

Once you have determined your target asset allocation, you should review it periodically to see that it is still the 80/20 or another mix that you have chosen.  If stocks have gone up in value, your 80/20 portfolio might now be 90/10, with 90 percent of your total investment invested in stocks. You should “rebalance” by selling enough of the stocks to bring your percentage of stocks back down to 80 percent and your bonds back up to 20 percent. When the reverse happens, and stocks go down, you should sell bonds and buy lower priced stocks. Over time, this strategy will keep your asset allocation aligned with your risk tolerance and other investment objectives.