How to rebalance your portfolio in a soaring market

5 hours ago7 min read

Let's talk about getting your financial house in order when the market's on a tear—because if you've set a target asset allocation for your portfolio, you're already ahead of the game, much like having a solid game plan before starting a side hustle. But here's the catch: unless you're parked in a set-it-and-forget-it option like a target-date fund, your carefully calibrated mix of stocks, bonds, and cash will drift as markets move.In a roaring bull market, you might wake up to find your equity slice has ballooned beyond what you planned, skewing your risk profile; it's the financial equivalent of one project taking over your entire schedule, and it demands a deliberate rebalancing act. Rebalancing is that disciplined process of selling high on assets that have appreciated—trimming your winners—and using those proceeds to buy into areas that have lagged, effectively enforcing the timeless buy-low, sell-high mantra.Now, I'll be straight with you: rebalancing isn't a magic bullet for juicing returns, especially if it means ditching asset classes that keep climbing, but its real superpower lies in risk management, keeping your portfolio's volatility from creeping up as you near big life goals like retirement. Start by assessing where you stand—after a long bull run, a portfolio that began at 60% stocks and 40% bonds a decade ago could easily be pushing 80% equities today, which is a hefty risk bump.Don't stop there; check your international versus U. S.stock split, as global markets have had their moments, and aligning about a third of your equity exposure overseas, as Morningstar's global market portfolio suggests, can add diversification that smooths out bumps. Also, peek under the hood for imbalances like growth stocks outpacing value, or speculative assets like gold and bitcoin sneaking into overweight positions thanks to recent hype.When it's time to act, remember you're managing your overall portfolio, not every single account, so focus on the big picture. For tax efficiency, make adjustments inside tax-deferred shelters like IRAs or 401(k)s where trades won't trigger capital gains—say, selling some U.S. stocks to buy an international fund in your 401(k).If you must rebalance in a taxable account, try harvesting losses to offset gains, though in this strong market, opportunities are slim; only a few categories like India equity or real estate have dipped lately, and long-term government bonds have been down about 8% annually over five years, offering potential loss-harvesting spots. Another smart move is using required minimum distributions (RMDs) to your advantage—when you take RMDs from traditional IRAs, you can choose to sell off your top performers to realign your allocations without extra tax hits.And if you're hesitant to realize gains, funnel new contributions into underweight areas; it's a slower path, sure, but it's better than letting imbalances run wild. Even in a steady climb like we've seen lately, rebalancing is crucial for keeping risk in check, especially as retirement looms and you start drawing down—think of it as regular maintenance for your financial engine, ensuring it runs smoothly through market twists and turns.

#portfolio rebalancing

#asset allocation

#stocks

#bonds

#risk management

#tax efficiency

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