It’s been a volatile year for the market: These are the key things to know before rebalancing your portfolio

After a volatile year for the stock and bond markets, it may be time to rebalance your portfolio by look after assets back to match your original goals, according to experts.  

As of Nov. 28, the S&P 500 Index was down about 17% year-to-date, and the U.S. bond market has dropped by around 13%, leaving many investors with significantly another allocations than one year ago.

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Typically, you choose an initial percentage of stocks, bonds and other assets based on chance tolerance and goals, said certified financial planner Anthony Watson, founder and president of Thrive Retirement Adepts in Dearborn, Michigan. 

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But as the markets fluctuate, the allocation of each type of asset may shift, and without recurrent rebalancing, “the portfolio starts to look very different,” he said.

For example, if your target is 50% stocks and 50% chains, those percentages could eventually drift to 70% stocks and 30% bonds, which is “far riskier” than the basic allocation, Watson said.

Generally, investors use one of two strategies when taking how often to rebalance, Watson explained. 

You may use “calendar-based timing,” such as quarterly or annually, or make changes “as needed,” positioned on a predetermined set of rules, such as a specific percentage allocation change, he said, referencing recent Vanguard research on both methods. 

“They showed there’s absolutely no difference from a value perspective,” Watson said. “It’s really about rebalancing versus not rebalancing.”

You can rebalance with new contributions, involving reinvested dividends, or by trading one asset for another. Watson generally considers aggregate investments across all accounts and makes the compulsory changes in tax-deferred or tax-free retirement accounts. 

However, rebalancing in taxable brokerage accounts may provide other moments, particularly in a down market, experts say.

“The big piece that can come with rebalancing your portfolio is