When Is the Right Time To Rebalance Your Fidelity Portfolio?

Someone asks:

Do you rebalance at the end of the year or the beginning of the year? What is your experience with rebalancing your own 401k? The difference of even 1% on rate of return is tremendous when compounded over a working career!

Frankly, the idea freaks me out because that’s where the bulk of my money is compounding and the portfolio is decent, but I think this is worth investigating. I have never fiddled with it or even thought about it before but I’m at a point where FIRE could be real if I really dial in on everything.

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Answers:

Mitch K:

I do it in retirement accounts. By doing this once year, you can rebalance by taking profits and buy what went down. It is a proven financial planning strategy.

John M:

I absolutely rebalance my retirement account 2x a year. I incorporate my taxable accounts in my decisions as well. I rebalance based on 90/10 rule equity/bonds. For equity its 60/30/10 domestic/international/emerging markets. Finally I have it by sector as well. I’ve never gotten huge returns but the volatility of my ROI has not been as great either. One thing rebalancing does for you naturally is buying on the dip and pulling profits.

Meg C:

If you are young, I’d just have it all s&p, most 401k’s offer that. No rebalancing, just let it grow for decades.

Art S:

I have prudential do my rebalance quarterly, i use to mess around but then prudential has the right to make changes without my permission they send a physical mail about it and i missed it. Its strange or maybe i understood things differently this is my 401k.

Matthew W:

I’ve stopped rebalancing because I want to own more of stuff that has done well recently. I realize that this goes directly against the philosophy of those that believe in the concept of rebalancing.

William N:

Since there is no automatic re-balance in a taxable account, I use my ongoing contributions to invest in positions I feel are underweight. I certainly would not sell a security just because your target % is slightly out of whack. That only makes sense in a tax differed account.

Mike R:

This really depends on your individual investment goals and preferences.

But broadly speaking, long term rebalancing strategy should probably be dynamically ongoing. In other words, always be investing new funds and dividends into underweight positions. This can help reduce the need to rebalance in the first place.

Beyond that, if rebalancing is important to you, generally you want to stick to a consistent schedule with clearly defined rules. Something like once annually or if allocations deviate by more than say 7%.

Craig D:

I’ve been researching this topic. Jack Bogle said to “never” rebalance. I then watched a video from Rob Berger where he backtests the theory. It can been seen (using Portfolio Visualizer) that over 30 years a 60/40 portfolio can end up as 90/10. It’s interesting.

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Hi! I'm Diego, 38, and I currently reside in New York. I work as a financial analyst. I primarily focus on initiatives involving research and data analysis.

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