Written by Tyson Ray, FORM Wealth Advisors | CFP®, CExP®, CIMA®
When I was growing up, I remember my grandma pruning the fruit trees in her yard as winter began to transition into spring. I would help her cut off dead branches and then gather them into a pile to dispose of them. I’m sure I was a big help!
Fruit trees that are maintained — pruned — regularly tend to produce more fruit than those that are left untended. Pruning fruit trees and berry plants helps regulate their growth, increase yields, improve fruit size and quality, and maintain plant health and vigor. Usually, pruning is done during the dormant season, just before active growth begins in the spring.
Regular maintenance of your portfolio is important as well.
The elections are behind us, the new administration is settling in — and the world didn’t end! So now we are entering a new season, a “new normal.” It’s a great time to review our clients’ portfolios and reset them, as needed, based on updated research and metrics we received in the first quarter of the year. We also set aside the reserves our clients told us they need for the next 12 to 24 months.
Rebalancing your portfolio
Rebalancing your portfolio is an important financial stewardship principle we encourage. If adjustments are needed, we want to make them as soon as possible. Sometimes, when we compare current allocations with clients’ original or preferred allocations, we find that few, or no, changes are needed. We rebalance only as necessary to realign your asset mix with your goals.
Even if you experience no significant changes in your personal situation, the weighting in each asset class in your portfolio can change over time. That’s because as the year progresses, the market value of each security in your portfolio earns a different return, and this causes a change in the weighting. So your original asset mix can change because of the different returns of those asset classes. When we rebalance your portfolio, we change the weightings of assets as needed to realign with your desired risk profile and to manage volatility.
What’s involved in rebalancing
The rebalancing process typically involves buying and selling investments to make sure your portfolio’s asset allocation continues to fit your risk tolerance, time horizon and investment objectives. We want to make sure no single asset or asset group represents too much or too little of your total investments.
For example, let’s say you and your advisor have decided a good strategy for you is to maintain a portfolio balance of 60 percent stocks, 35 percent bonds and a 5 percent REIT (real estate investment trust) mix. And let’s say that, because of changes in the market value of securities in your portfolio, those percentages have gotten out of alignment. In this case, your advisor might sell off some of those equities to buy back the needed percentage of bonds and REIT shares.
Depending on the situation, we might sell high-performing assets and reinvest in undervalued assets. This can result in a more consistent investment strategy over time by smoothing out the highs and lows. The process can potentially enhance your overall risk-adjusted return, although there are no guarantees. But we won’t know if we don’t review your portfolio regularly. We want to take advantage of opportunities for you if they’re there. We want to make sure your portfolio is positioned for growth at all times, regardless of what happens in the markets, the economy or your personal life.
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When was the last time your advisor rebalanced your portfolio? Maybe it’s time to take some risk off the table as we move into the rest of 2025.
