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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Friday, August 11, 2006

The Importance of Rebalancing

Rebalancing is often overlooked in the grand scheme of investing, but can be very important in reaching your goals. Asset classes grow at different rates of return and this causes rebalancing to be necessary.

Look at the 20-year period from 1980-2000. In 1980 you start with 50% stocks and 50% bonds. Without rebalancing by 2000 you would be 70% stocks and 30% bonds. This can lead to higher volatility because your stocks are now overweighted in your portfolio.

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