Rebalancing Act: Why You Shouldn't Massage Your Portfolio Every Year
REGULAR REBALANCING is good. But even less would be better.</br></br>Around this time each year, many folks nudge their mutual-fund portfolio back into shape by lightening up on winning funds and adding to lackluster performers. And that's a smart thing to do.</br></br>It turns out, however, that rebalancing can be even more profitable if it's done less often. Here's why you should scale back your real- estate investment trusts and your small-stock holdings -- but leave your growth stocks and your Japan fund to run.</br></br>-- Reining in risk. Building and maintaining a fund portfolio can be reduced to three simple steps. First, pick the market segments you want to invest in and decide how much you will stash in each.</br></br>You might settle on a mix of, say, 30% large U.S. stocks, 10% small U.S. companies, 5% REITs, 10% developed foreign-stock markets, 5% emerging-market shares, 5% gold stocks, 25% high-quality U.S. bonds, 5% high-yield junk bonds and 5% foreign bonds.