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The top 3 reasons for reallocating your investment portfolio

(Reading time: 3:30) 

Your initial investment strategy is typically based on two key things—where you currently are in life; and where you ultimately want to be down the road.

For example, let’s say you’re early in your education career with a goal of adding to your pension income in retirement. To help you reach that long-term goal, you’ll choose a mix of stocks, bonds, equities, and/or cash for your investment portfolio—otherwise known as asset allocation.

In basic terms, think of asset allocation as the balance of risk and reward within your portfolio.

However, during your investment timeline, your life (and the market) will undoubtedly go through a series of changes.

The extent of those changes could potentially throw off the balance when it comes to the level of risk you’re willing to take, or amount of ‘reward’ you’re going to make.

This is where the importance of reallocation comes in—not to be confused with rebalancing.

With rebalancing, you’re fine-tuning your portfolio back to its initial allocation targets to ensure alignment with your investment objectives (as the original percentages of different asset classes will undoubtedly change over time).

Reallocation, on the other hand, is all about changing those underlying allocation targets for 3 very important reasons:

#1: To change your level of risk tolerance.

As we mentioned earlier, asset allocation is all about balancing risk and reward. Depending on the direction of market fluctuations, you could end up taking on more, or less risk than you bargained for. Alternately, as you get closer to your 85 or 90-factor, you may not feel comfortable taking on as much risk as you did in the past. That’s when it’s time to review your portfolio to see if reallocation is in order.

Learn how to build a balanced portfolio that reflects your risk tolerance.

#2: To compensate for changes in your time horizon.

Getting married. Having kids. Sending those kids off to college. Retirement. Collecting your pension.

The only constant in life is change—which means your asset allocation should also change as the window of time you have to invest (I.e. your time horizon) shortens. This will keep you on track to achieving your financial goals within your desired timeframe.

Check out time horizon examples for putting certain financial plans into motion.

#3: To make any necessary changes depending on fund performance.

Some asset classes will naturally perform better than others. Reviewing your investments on a regular basis will provide you with an opportunity to evaluate the performance of all assets in your portfolio and then reallocate as needed. Keep in mind, however, that you should never use reallocation as a means to try and time the market, or to capitalize on the hot stock tip of the day. You only have to look back at the past decade to see that not even the experts can effectively predict when to sell, or to buy.

Just remember to keep focused on your long-term investment goals—and when in doubt, reach out to Educators Financial Group.

With over 45 years of helping education members achieve their financial goals, we’ve got the right investment advice for your specific life stage and financial situation. No matter where you are on the pay grid, or what your pension income is (going to be) in retirement, we can take a look at your current investment portfolio to ensure you’re on track to realizing your financial dreams.

Have one of our financial specialists connect with you to see if reallocating is something that needs to happen in your portfolio.

With Educators Monitored Portfolios, you don’t need to worry about reallocating your investment portfolio—learn more.

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