It’s hard to believe, but 2011 is almost over. One of the most important things an investor needs to do is to examine their portfolio and rebalance it at least once a year or so. If you haven’t rebalanced your portfolio in 2011, then it’s time to look it over and see how your investments are doing.
2011 is turning out to be a tough year for the stock market. In this market, it is essential to rebalance your portfolio so you can take advantage of the downturn in various segments.
One good thing about having a blog is I can go back and check what I wrote about rebalancing in 2010.
This is what my allocation looked like after I rebalanced the portfolio in 2010.
And this is how the market performed this year.
VFLTX , VFIIX = bond; VTSMX = total market; VWO = emerging market; VB = small cap ETF
As you can see, the foreign market is not doing too well this year. Small cap also went down over 5% this year.
In 2010, small cap stocks went up over 20% and threw our portfolio out of balance. Our portfolio was over-weighted with small cap funds. It was a good thing I rebalanced it when I did and took some profit.
This is what my allocation looks like now.
This is somewhat close to my target allocation.
The international and emerging market holdings went down quite a lot this year due to the Europe debt crisis as well as the slowdown of growth in China. Now would be a good time to pick up some of those funds for a discount. It is scary though because we don’t know how much further those markets will drop.
It is tempting at this time to change my target allocation. I really want to change my international and emerging target allocation to 15% each. Should I do that or stick to my guns?
The target allocation shouldn’t change yearly though so I think I will need to shift some funds into those down market right now. Next year I will re-evaluate the target allocation and see if it really needs to change. We need to shore up our cash if I execute my exit strategy and quit my job.
Conclusion – It’s best to stick with my target allocation when I’m rebalancing. The target allocation should change only once every few years. What do you think? Is this a good policy? Did you rebalance your portfolio? 2011 is almost over so if you haven’t done it yet, you need to sit down and take a look at your investments.
For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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