When you set up your 403(b) or 457 plan, you determined asset allocation targets based on your timeline, goals and risk tolerance. (Learn more about asset allocation.) As the market fluctuates, so can the percentage of each asset class in your portfolio. Rebalancing can help keep your asset allocation in line with your original targets, so that your portfolio doesn’t become too dependent on the performance of one investment, asset class or style. You can sell assets from classes that are outperforming the others and buy more of asset classes that are underperforming. This can help keep your portfolio diversified.
Some financial experts recommend rebalancing your portfolio on a set schedule - such as every six months or once a year (for example, near your birthday or at the beginning of a calendar year). Other financial experts recommend rebalancing only when the weight of an asset class shifts a certain amount – say 5% – from your original target. Your decision to rebalance may also depend on your age and if your financial situation and goals have changed. A handy How-to Guide to rebalancing is provided here.
Important Note: CTA does not give tax, legal or investment advice. You should meet with your tax, legal, and/or investment advisor to determine the best fit for your situation.