Since you are still adding to your portfolio, you can rebalance by buying more of what's going down and less of what's going up. Once your portfolio is too large for this and one of your positions if more than 5% off your target weight, rebalance your portfolio.
Generally within +/-5% of target allocation is sufficient to maintain a desired risk/diversification level. For a typical portfolio invested in unleveraged equities and bonds this might require rebalancing every 1 or 2 years. More volatile instruments and assets might require more frequent rebalancing.
Rebalancing by set asset targets is a good way to approach portfolio rebalancing since markets can change more in some time periods than in others. A standard rule of thumb is to rebalance when an asset allocation changes more than 5%—ie. if a certain subset of stocks changes from 15% of the portfolio to 20%.
Check on a schedule, and rebalance if any class is off by 10% or more of it's target (meaning your 35% large-cap is below 31.5%, or your 5% cash is more than 5.5%). When you rebalance, touch as few classes as possible to bring things into balance.
So, rebalance annually or semi-annually and you should be fine.
Most people rebalance either annually and/or using rebalancing bands (plus or minus 5% of the portfolio or 25% of the allocation).
Adjust based on your preferences, but starting positions with a 1/4th to 1/2 of your total allocation works well. You can do some quick math and figure out what portfolio percentage you want to allocate to a new position. Ease into it, slow and steady.
Remember that over the long term, stocks have a significantly higher expected return than bonds. ... For this reason, rebalancing a portfolio of stocks and bonds is therefore likely to lower your returns, not increase them.
Use tax-favored retirement accounts.
Taking gains inside plans such as 401(k)s and individual retirement accounts (IRA) will not generate current taxes. Therefore, Ellen may be able to do some or all of her rebalancing, tax-free, by moving from stocks to bonds within her IRA.
Rebalancing your portfolio on your own, without the help of a robo-advisor or investment advisor, doesn't require you to spend any money.
"Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original desired level of asset allocation. For example, say an original target asset allocation was 50% stocks and 50% bonds."
Financial planners recommend you rebalance at least once a year and no more than four times a year. One easy way to do it is to pick the same day each year or each quarter, and make that your day to rebalance. By doing this, you will distance yourself from the emotions of the market, Wray said.
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