Portfolio rebalancing
Training 805 minutesportfolio rebalancing
You are 50 and work as an airport dispatcher. Three years ago you set your $10,000 portfolio at 60% stocks and 40% bonds. A lot has changed since.
Training goal: Bring the portfolio back to plan
▶ Play this trainingSituation
1. Stocks grew from $6,000 to $8,400 and bonds slipped to $3,600. You are now at 70/30.
- Leave it, stocks are winning
- Back to 60/40: move $1,200 to bonds
- Dump the bonds, they are lagging
2. The account is taxed on gains, so selling stocks triggers tax. You add $500 every month.
- Send new deposits to bonds
- Sell stocks and pay the tax
- Do nothing because of the tax
3. How often should you check and rebalance?
- Every week, to stay precise
- Once a year or at a 5-point drift
- Never, the market will sort it out
4. A crash: stocks fall 30%. You are now about 51% stocks and 49% bonds. Your job is steady and the money is for 15 years out.
- Wait until stocks start rising
- Switch the target to 40/60 for good
- Buy stocks back to 60%
What you will learn
- Rebalancing resets risk to the level you chose.
- Use new deposits first, sales second.
- Once a year or at a 5-point drift.
Your real-life step
Work out your current stock and bond shares and compare them with your plan. Off by 5+ points? Steer your next deposit there.
Questions and answers
What is portfolio rebalancing?
Bringing asset shares back to target, such as 60% stocks and 40% bonds, after the market has moved them.
How often should you rebalance your portfolio?
Usually once a year or when a share drifts 5 percentage points. More often adds fees and taxes with little benefit.
Can you rebalance without selling?
Yes: send new deposits and dividends to the lagging asset class. That avoids taxes and selling fees.
More trainings in this module
Numbers are illustrative. A game, not financial advice.