Wealth
Management
TheArt of Rebalancing
—ADAME. CARLIN
I
norder toattempt toachieveyour
portfolio's long-termgoals, it isnecessary
tosystematicallyrebalance itover
time.Notsurprisingly,whatwasan
appropriateportfolio inoneeconomic
environment,orduringanearlier time
inyour life,mayno longerbe thebest
way tomeetyourshort-or long-term
financialneeds,oryour tolerance forrisk.
Foryears, investorshavebeen told
to
stay thecourse
and
invest for the long
term
.Conventionalwisdomdictates that
youshouldcreateyourportfolio— for
yourcurrentfinancialneedsand future
goals—andyoushouldstick to it,despite
fluctuations in themarketor theallureof
anew trend.While thismaybeasuitable
strategy forsome investors,manywillneed
tore-evaluatewhether thecourse they'reon
isstill themostappropriate.
Theprocessofrebalancingcanbean
essentialcomponent to the long-term
healthandsuccessofyourportfolio. In its
simplest form, rebalancing involvesshifting
assets fromone investment,orclassof
investments, toanother.Doing thiswill
alignyourportfoliowithapre-determined
investmentplanandassetallocation.This
investmentplanwillhavebeencreatedwith
yourspecificneedsand long-termgoals in
mind. If this isdoneonaregularbasis, you
canhelpensure thatyourportfoliostays
on trackand increases theprobabilityof
successunderyourcurrentcircumstances.
•
Constructan initialportfolio
withagoal-sensitiveallocation
ofassetssuchasstocks,fixed-
income,cashand, ifappropriate,
alternative investments.Within
yourstockportfolioyoushould
ensurethatyouareproperly
diversifiedastogeographic
exposure,marketcapitalization,
sectorand industry.Additionally,
withinyourfixed-income
holdings,youshouldbesurethat
yourportfolio isbestpositioned
withrespecttocreditquality,
issuer,andexposuretoduration.
Forsomefixed-income investors,
it isalso importanttoensurethat
theportfolio isappropriately
balancedbetweentaxableand
non-taxablesecurities.
•
Besure topro-actively
documentyourshort-and
long-termgoals
whendesigning
yourportfolio.
•
Considermaking
comprehensiverebalancing
anannual event.
Manyexperts
agree that investorswho
rebalanceat this interval,or
slightly longer, reapmanyof the
samebenefitsas thosewhodoso
moreoften.
•Donotsimplyallow the
naturalprogressions in
themarkets todetermine
the futuremakeupofyour
portfolio.
Ifunchecked,
thismay increase therisk
ofyourportfoliobecoming
over-weightedand/orunder-
weighted inareas thatmay
notbe inyourportfolio’s
best interest.
•
Rememberthatrebalancing
mayoften includeparing
downoreliminatingspecific
investments.
Asaresult, remain
awareofanytax liabilitiesthat
couldresult fromrebalancingso
thatyouareproperlypreparedto
handlethem.
•Standbyyourplan.
Your
portfoliowascreated torespond
toanumberofscenariosand
goals.Donotallowyourself to
beeasilyswayedby the latest
trends,butdocontactyour
financialadvisor ifyou feel the
need tomakeachange.
•As timepasses,besure to
discusswithyourfinancial
advisor
anymaterialevents that
takeplace throughoutyour life.
SevenSteps toEffectivePortfolioMaintenance
AdamE. Carlin ismanaging
director, seniorportfolio
managementdirector and
privatewealthadvisor atMorgan
StanleyPrivateWealthManagement
located inCoralGables, Floridaand
maybe reachedat 305-476-
3302or adam.e.carlin@
morganstanleypwm.com
PROMOTION
AdamE. Carlin isaprivatewealthadvisorwith the
PrivateWealthManagementDivisionofMorgan
Stanley inCoralGables. The informationcontained
in thisarticle isnotasolicitation topurchaseor sell
investments.Any informationpresented isgeneral in
natureandnot intended toprovide individually tailored
investmentadvice. Thestrategiesand/or investments
referencedmaynotbesuitable forall investorsas the
appropriatenessof aparticular investmentor strategy
will dependonan investor's individual circumstancesand
objectives. Investing involves risksand there isalways
thepotential of losingmoneywhenyou invest. Theviews
expressedhereinare thoseof theauthorandmaynot
necessarily reflect theviewsofMorganStanleySmith
BarneyLLC,MemberSIPC, or itsaffiliates.
