Do you find yourself sometimes opening your latest investment statement and wondering whose portfolio is this? Years ago you filled out one of those risk tolerance questionnaires and decided to invest 80% in stocks and 20% in bonds. Now, when you look at your account, it looks like somebody else decided that was not the right mix for you. Actually, nobody decided anything – except for you. You decided not to rebalance your portfolio.

Rebalancing is the process of shifting funds in your portfolio to maintain the asset allocation you previously determined was appropriate for you. Rebalancing can also occur when your circumstances have changed and you have decided the allocations of the past are no longer right for you. The key in both of these situations is that you decided – you are in control of your portfolio.

Using the example from the opening of this article, you may have decided that 80% stocks and 20% bonds is the right mix for you based on your tolerance for risk, years to retirement, etc. If your stocks have been doing well for some time while bonds remain flat, you may find yourself opening one of those statements (online, of course, because you are on board with the green revolution) and discovering that 90% of your portfolio is invested in stocks. This may send you into a panic because 90% stocks is way beyond your tolerance for risk. But do not despair, there is something you can – and should – do. And this leads us to the 3 simple points I promised to help manage your investments.

* You must rebalance your portfolio occasionally 
* Do not rebalance just because the market is up or down today 
* Rebalance all of your investment accounts

See, I told you they would be 3 simple points. But they are often overlooked by investors. The first point is that this is not some optional suggestion. Keeping your portfolio balanced properly for your situation, is just part of the investing process – just as buying a stock or a bond are. So put a reminder on your calendar – quarterly, semi-annually, annually – whatever you are comfortable with. Keep in mind that with each review you want to ask yourself if your situation has changed. Is 80-20 still right for you? Secondly, do not rebalance just because there was a spike (or heaven forbid a significant drop) in the markets today.

We have all heard the same old saw about how the market averages out over time. Set that reminder we discussed in point one and review/rebalance when your schedule calls for it. And finally, you must review all of your investments in order for your overall portfolio to be in line with the balance you desire. Many of us have a 401K at work as well as a fund that our cousin Larry talked us into investing with even though he actually put his money somewhere else and made a killing and bought a boat that he never invites us out on. Anyway, I digress. The point is, your portfolio encompasses all of your investments. You want to review them in their totality.

The actual process of rebalancing is something that cannot be discussed in detail in a single article. All accounts are different. But the simplest is when you have the option to automatically rebalance. Always look for that option and even ask about the option even if you do not see it offered. Also keep in mind, automatic can mean it will happen for you or it can mean that you can initiate it at your request. If you have an investment with no automatic option, you will need to use the procedures available for that account to transfer funds from one balance to another. Of course, when in doubt, consult with your financial advisor.