INVESTING

Managing Your Stock Portfolio

Managing your stock portfolio means getting into the habit of periodically revisiting your stock portfolio, like with all of your investments.

When you rebalance your stock portfolio, you are helping to improve returns because it forces you to buy low and sell high.

You will sell assets that have done well and may be ripe for decline, and buy stocks that have done poorly and may be poised to rise.

Approaches to Managing Your Stock Portfolio

There are two common approaches to rebalancing your portfolio. One is rather random and is referred to as date-based. With this approach, you simply pick a date on the calendar and decide to rebalance your portfolio each year on that date. You then rebalance your portfolio to whichever allocation strategy you have chosen.

For example if you want 70% in stocks and 30% in bonds and your portfolio shifted to 80-20, then its time to rebalance.

The other approach is called a range-based rebalancing. This approach is a little more involved, but is said to provide good results. How it works: say you believe 80 percent of your money should be in stocks.

You can elect to rebalance your portfolio only if the allocation moves 10 percent above or below that level. The percentage it moves is again up to you to determine.

Failure to periodically rebalance your portfolio can have a significant impact on your assets. Remember the tech stock boom of the late 1990s? Many investors found themselves investing heavily in technology stocks.

Even when they sold off other non-tech stocks, they bought more tech stocks because it was performing so well. Then, as all good things do, the tech market came to an abrupt halt in early 2000. With so much of their portfolios wrapped up in tech stocks and nothing to fall back on, a large number of investors lost almost everything if not everything.

Rebalancing is a good thing. It is a wise thing. It allows you to capture gains as they occur across your asset classes and assists in ensuring that you will be less vulnerable to any area that may unexpectedly decline in the near future.

What To Know Before You Buy A Stock