Portfolio Rebalancing for Retirees

In a bear market, especially one that looks like it may be long, portfolio rebalancing is a must for retirees and for those that may be retiring soon.

Portfolio rebalancing is the act of bringing back your collection of investments back in line with the way you originally intended set it up. For example, assume that you set up your portfolio originally with 50% stocks and 50% bonds. If, over the years, your stocks lost 50% of their value and your bonds increased their value by 50%, your portfolio is now out of balance based on the original intent. Your portfolio is now at 25% stocks and 75% bonds. whether this is good or bad is an individual decision that every retiree will have to make on his own, but portfolio rebalancing is definitely an option that should be on the table.

This is especially true for retirees today. If your portfolio was largely invested in stocks over the past 10 years or so, it has undoubtedly undergone a massive transformation. It wouldn't be surprising if your portfolio had lost 50% of your initial investment. In most cases, a loss this steep will trigger lifestyle changes. Those changes may involve your working for a greater number of years than you had anticipated. Or it may involve taking on a second job. It will also involve rebalancing your portfolio because, unlike a younger person, you can't afford to leave it untouched in the hope that over the long term the gains will overcome the losses and put you into the black again.

On, the other hand, you may have had a very conservative investment strategy, for example with 95% in bonds and treasuries and 5% in stocks. If you were a fantastic stock picker and your stocks had a 500% increase in value, now may be the perfect time to do some portfolio rebalancing by selling off some of the stocks and buying more treasuries and bonds with the proceeds.

Older Americans, in addition to portfolio rebalancing, should also be doing portfolio re-evaluation. What was the perfect asset allocation strategy 10 or more years ago, may be totally out of place now that you're nearing retirement.

Some people are so depressed with the direction of the stock market lately that they are avoiding even looking at their statements, thinking it will protect them from further stress. If you're near retirement however, the sooner you look at it and face the hard cold facts, the sooner you can re-adjust your retirement goals for your new reality.

If you are too emotionally involved, you may try working with a good financial planner whom you trust and who can remove the day to day worrying from your shoulders. A good financial planner can help you to come up with just the right portfolio balancing strategy for your needs.

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