Rebalancing Your Investment Portfolio in an Uncertain Economic Climate

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The news is not good, but is it ever? Even when the economy is stellar, it seems as though there are those economists who thrive on forecasting doom and gloom. However, with so much tension in the air and major economists predicting a downward trend in the coming months, there is growing concern that the United States is headed for another recession akin to the market fall of the last decade.

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Key indicators do tend to point in that direction and many major companies are already laying off thousands of workers in anticipation of this downward spiral, but the news doesn’t need to be all bad when it comes to the world of investing. Perhaps it’s time to look at rebalancing your investment portfolio so that you can mitigate losses you might otherwise sustain. Let’s take a look at what rebalancing a portfolio means and how you can use this to your advantage.

The Ultimate Goal Is Reassessing Your Risk Profile

When you originally set up your investment portfolio, each asset carried a certain amount of risk. Over time, those risks have changed and will necessarily need to be rebalanced to keep up with the level of risk you are comfortable with. That is, in very basic terms, your risk profile. Expert financial advisors suggest you look at how you could use the Berger Financial portfolio rebalancing model. There are two main strategies you could use, which include adding more money to those assets that are not doing well or selling off your higher performing assets to buy more of those which aren’t doing well.

It’s all about allocation in your original risk profile and you will need to continually re-evaluate performance so that you can keep allocations where you originally set them. For example, if you want bonds to be 25% of your portfolio and they have fallen to 20%, you know you need to bring that percentage up by five points. You can do this by investing more money so that your portfolio included an allocation of 25% in bonds or you could sell higher performing stock shares, for example, to bring that allocation down so that bonds rises again to 25% of your allocated assets.

Why the Time Is Ripe for Rebalancing Your Portfolio

You might want to hold on any movement at the current time due to worries about trade wars with China and such a tense relationship with Russia. However, this is the time to reassess your portfolio so that you can reallocate assets based on forecasts you have learned to trust. While it is suggested that you meet annually with your financial advisor to rebalance your portfolio, if necessary, perhaps it’s wiser to use the coming months to get their counsel.

Without sounding like Chicken Little crying, “The sky is falling,” it does seem to be a wise move on your part based on what leading economists are saying. Whether or not we are headed for a recession, the charged political atmosphere does portend changes in the markets. Rebalancing your portfolio based on key indicators may be your best way to survive if you face the worst case scenario. It’s always better to be safe than sorry.



Disclaimer: This content does not necessarily represent the views of IWB.


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