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Many investors find it time-consuming and difficult to rebalance their investment portfolios. Because of this, you probably don’t want to use a time-based schedule to rebalance your portfolio. If you do, you will expend a lot of effort every quarter or year, depending on how you arrange your schedule.
There are times, though, when you should rebalance your portfolio. Knowing how to choose the right opportunity will help you maximize your investment returns while saving you from headaches.
Ideally, you know how much money you need your investment portfolio to generate. Whether your goal is to earn enough money to pay for your child’s college education, fund your retirement or make a large purchase, it’s important to know how much money you need.
If your investment portfolio isn’t reaching your goal, then it’s time to rethink your strategy. You may need to reconsider your approach to asset allocation. The best online investment sites can provide you with financial tools to help you do just that.
When the stock market generates predictable returns, it makes sense for you to put more of your money into stocks. The opposite is true when the stock market becomes unusually volatile.
During times when the stock market is stable, you may want to put 70 to 80 percent of your investment money in the market. If the market gets too unpredictable, though, you run a significant risk by devoting so much of your money to stocks. You may want to rebalance your portfolio by putting more money in bonds. That way, you can protect yourself from a potential stock market crash. A properly diversified portfolio will help you grow your money while protecting you from unnecessary risk.
Most of the time, bonds provide a relatively safe option for investors to earn money. As long as the Federal Reserve doesn’t increase the federal funds rate, you can expect bonds to perform predictably.
Things can change quickly, though, when the Federal Reserve decides to raise rates. Suddenly, bonds become a less-rewarding option. As the federal funds rate grows, returns from your bonds will shrink. This makes it a good time to consider putting more of your money into the stock market.
Finding the right balance for your investment portfolio is always a challenge. After all, no one can predict the future. Knowing when to inspect your portfolio and considering rebalancing your assets, however, will improve your odds of making money, even during uncertain times.