The Basics of Keeping a Balanced Investment Portfolio

Richard Irwin |
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Whether you’re brand new to investing or you have an established portfolio, balance is seen as one of the keys to making the most of your investments. But what does a balanced portfolio look like? And how do you keep your portfolio consistently balanced? Here are the dos and don’ts of balancing your portfolio and some helpful tips to potentially increase your returns. 

Do: Aim to have a mix of assets 

At its most basic level, balancing your portfolio means investing in a diverse mix of assets. But this mix might look different for every person depending on their specific financial situation, risk tolerance, age, and investment goals. 

Most of the time, investments are a mix of stocks and bonds. Stocks are considered high-risk investments because they can be very volatile, while bonds are considered lower risk. If you’re not sure where to start, a financial professional can help you determine your risk tolerance and develop an investment strategy based on your preferences.

Don’t: Set it and forget it  

The secret to making your portfolio work for you is to make sure it stays balanced. The value of investments fluctuates over time, so it’s important to make sure you are consistently rebalancing your portfolio. Take a look at your investments about once per year and make sure their value still matches your desired balance. 

Here’s an example: You have 70% invested in stocks and 30% invested in bonds. Over the course of five years, the stock market value has doubled, but the value of the bond market has only increased marginally. Your stocks will be worth significantly more than what you have invested in your bonds, so you may want to rebalance to match your original investment mix of 70% stocks and 30% bonds.

Do: Rebalance yearly  

There are a few different ways to rebalance your portfolio. One way is to sell and rebuy assets according to your balance needs. The potential downside to taking this approach is that you could be selling your best-performing assets in favor of lesser-performing assets.

To avoid selling your best assets, the other method to rebalancing your portfolio is to invest new funds into assets. This way, you can keep your high-performing investments and add to the investments that are causing the imbalance in your portfolio instead. Consistently investing more funds into your accounts is one way to grow your portfolio’s value over time.

Don’t: Keep the same balance over your lifetime 

The other advantage of reevaluating your portfolio balance yearly is that you have the chance to change your goals and investment strategies. Whether you’re getting ready to buy a house or preparing for retirement, you’ll always have different financial goals to reach throughout your lifetime. And while a higher-risk investment portfolio may work during certain phases of your life, there may be times in your life when you want to take a more conservative approach. 

If you’re looking for more guidance on what a balanced portfolio looks like for you and how to invest your money, reach out to a financial professional for help. 

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This article was produced by Advisor Stream for the benefit of Rick Irwin, Financial Advisor at Trinity Wealth Partners, a registered trade name with Investia Financial Services Inc. The information contained in this article does not necessarily reflect the opinion of Investia Financial Services Inc. and comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.
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Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.


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