Rebalance and Reassess

Once you’ve created your customized investment plans, there’s not a whole lot left to do. You’ve already made the important decisions, and you’ve turned over the day-to-day management of your various accounts to professional money managers and/or robots. If you have any individual securities in your plans, you’ll still need to follow and manage those holdings, but otherwise you’re good to go until your next rebalancing and reassessing date.

I recommend you rebalance and reassess once a year on the same date. Do it more often if you want, but I like to keep things as simple as possible. Every year, after I’ve finished my tax return and still have my accountant hat on is when I rebalance and reassess my own accounts. Tax time doesn’t represent any magical “stock market triple witching hour,” as someone once suggested to me. It just helps me to not forget to do it, “it” being so important to do.

I also recommend setting your own customized rebalancing and reassessing time. Folks have told me they do it during their employer’s open enrollment period, the end or beginning of the year, or on their birthday. (Don’t they have better things to do on their birthday?) Or maybe you want to rebalance and reassess on National Bubble Bath Day (January 8th), National Wine Day (probably a bad idea), or my personal favorite National Lineman Appreciation Day (April 18th). Pick a day and do it every year.


The rebalancing part is easy. First, pull up your customized investment plan, complete with risky to not-so-risky ratios, and see if it’s time for a change per your plan. For example, say your ratio was set at 70-30 last year, and today is your rebalancing and reassessing date. See what it says for the current year. If you’ve set the risky to not-so-risky ratio correctly, it should say 70-30, or perhaps 69-31, 68-32, or 65-35.

If your plan calls for a change in ratio, you need to tweak your investment percentages before rebalancing.

Rebalance Example

Last year’s ratio was 70-30, consisting of the following:

  • S&P 500 Index fund-30%
  • Mid-Cap ETF-15%
  • Small-Cap Actively Managed Mutual Fund-10%
  • International ETF-15%
  • Actively Managed Total Bond Mutual Fund-25%
  • Short-Term Bond EFT-5%

This year’s ratio calls for a slightly less risky 68-32 mix. What investments are you going to subtract from on the risky side and which are you going to add to on the not-so-risky side? This is one of your primary reassessing chores. Dynamic diversification dictates reducing percentages of the riskiest of your investments in lieu of not-so-risky ones, so your new mix now looks like this:

  • S&P 500 Index fund-30%
  • Mid-Cap ETF-15%
  • Small-Cap Actively Managed Mutual Fund-9%
  • International ETF-14%
  • Actively Managed Total Bond Mutual Fund-27%
  • Short-Term Bond EFT-5%

Notice how the riskiest of investments on the risky side (international and small cap) were raided? Dynamic diversification dictates you not only reduce your risk via your risky to not-so-risky ratios, but also through your diversification changes on a year-to-year basis.

The chances that your current mix of investments on your rebalancing and reassessing date reflect 68-32 with the above percentages are slim and none. If the stock market went bonkers in a good way during the past year, maybe your current mix is 75-25? Instead, if the stock market performed poorly, that mix might be at 65-35. Of course, how much your percentages move from year to year depends on the volatility of those risky investments as well as how much money you’re investing.

Besides protecting you from more risk, rebalancing helps you buy low and sell high, at least with a portion of your money. Whether it’s selling risky investments to buy less-risky-ones as in the above example or the other way around, move your money so the new percentages are reflected. Assuming you’re investing in the right accounts, this rebalancing shouldn’t cost you a penny. Now you’re good until next year.


Assuming you spent the necessary time to come up with a good investment plan from the get-go, choosing which investments to raid and which to add to during rebalancing is the extent of your reassessing. Or maybe you think things have changed so much that you want to reassess and change your investment plan?

Be careful here. Just because markets are down is not a good reason to change your plan. Your plan was created with negative market volatility in mind, and certainly that volatility is more than likely a short-term event.

If you’re going to change your plan, don’t change it too much. You’re passively managing your investment plan for a reason. Too much “I think the market is going to do this” or “I think the market is going to do that” is active management and more than likely detrimental in the long run.

Rebalance and Reassess

Rebalancing and reassessing aren’t hard to do, and you only need to do it once a year. It’s been my experience that rebalancing and reassessing is not only is the easiest of the risk management strategies to implement, it’s also the one folks most frequently forget to do. Don’t be one of them. Rebalance and reassess your investment plans at least once a year. Make it a yearly habit.