Happy New Year! Time to Rebalance?

Hope your Holiday season was peaceful and that you enjoyed your New Year’s festivities, especially the football! I love the Holidays but I also love cleaning up after the Holidays and getting ready to hit the ground running in the New Year.


The turn of the calendar makes for a logical time to look at your portfolio and think about what you are trying to accomplish. You are another year older – should you be in more “safe” assets in your investment portfolio? Are bonds “safe”? Has one part of your portfolio outperformed while another has underperformed? If so, should you sell the winning part so you can buy more of the losing part? It seems counterintuitive but that’s what a Rebalance is.

My Recommendation

Let’s say you had wanted to be 60% in stocks and 40% in bonds in your investment portfolio at the start of 2019. Stocks were strong in 2019, particularly tech stocks, and so let’s say you ended up 2019 at 62% stocks and 38% bonds because stocks outperformed. Now, should you sell 2% of your stocks portfolio and buy 2% more of bonds? Up until now, I would say that the transaction cost and the bother of it all weren’t worth it. However, if your stocks are (properly) invested in index mutual funds or ETFs, and you have your money in an account that charges little or nothing for commissions, then go ahead and do the rebalance, even for only 2% of your portfolio. If all it takes to rebalance is a couple of clicks, then go for it. Also, if you are contributing to your retirement account on a per-paycheck basis, make sure your election of how that money is invested fits with your portfolio composition objectives.

Another Recommendation

Within your “Stocks” allocation, you have likely sub-allocated a portion to Tech, a portion to the S&P 500, and perhaps portions elsewhere. Whereas Tech outperformed in 2019, I believe there will likely be a reversion to the mean in 2020. Therefore I believe you should reallocate somewhat out of Tech and into other sectors, including International stocks. For instance, the EEM, which is the ETF for Emerging Markets, has been on a pretty steady rise since August 2019 and is hitting new highs now. I believe other world economies will emulate the US economy in 2020 and show growth, not the other way around as some economists have predicted. Don’t bet the farm, but I believe it is prudent at least to have some money allocated so as to participate in world economic growth.


I believe the zero commission world makes it easier and less costly to reallocate and so I believe you should go ahead and do so, even for small percentages of your portfolio. Now is a very good time to reallocate, and you should make it a habit to do so every New Year’s Day. In fact, as you watch the Rose Parade every year, open up your laptop and do some simple math (if it isn’t already done for you) and make sure your portfolio allocation is in line with your objectives. Then go clean up the mess from Christmas after that.

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