Task #3: Rebalance Your Investments

At least once a year, preferably every 6 months, you should look at your retirement and non-retirement investment accounts and rebalance them. When you first opened your account, the brokerage probably had you complete a questionnaire to determine your investing goals & retirement plans. Part of the survey results includes a recommended allocation for how much of your paycheck should be invested in domestic & international companies in addition to large & small companies.

Because different funds perform differently, your portfolio will most likely need some minor adjustments. An example might be if you have the option to buy company stock and it returned 45% in the previous year. Most experts recommend that your 401k consist of no more than 15% of company stock, but a strong return coupled with weak gains on your other holdings could boost that allocation to 30% of your total portfolio size.

If a sharp market downturn happens or your company suddenly goes bankrupt (i.e. Enron), your portfolio value will plummet like a lead balloon and potentially never recover due to an overconcentration in company stock. Routine rebalancing helps ensure your portfolio stays diversified and reduces your overall risk of losing everything.

If you do not feel confident in continually rebalancing your investment portfolios, you can always sign-up for a target date retirement fund. There are some losers in this realm as well, but, for the most part, many of the funds are managed by experts in quality funds and maintain a target allocation similar to your own recommended investing strategy.