Talk to an Advisor


Rebalancing refers to the process of adjusting the holdings in an IRA portfolio to ensure that they align with the investor’s desired asset allocation. Over time, due to market fluctuations and differing performances of various assets, the actual allocation of assets in a portfolio can drift away from the original or intended allocation. Here’s how rebalancing works in this context:

  1. Asset Allocation Strategy: Initially, an investor determines an asset allocation strategy based on their investment goals, risk tolerance, and investment horizon. This strategy dictates the proportion of different types of investments (like stocks, bonds, mutual funds, etc.) in the IRA.
  2. Market Fluctuations: Over time, some assets may outperform others, causing the actual allocation to deviate from the planned allocation. For example, if stocks perform well, they might constitute a larger percentage of the portfolio than initially intended.
  3. Rebalancing Process: To rebalance, the investor or their financial advisor reviews the portfolio to determine which assets have exceeded their desired allocation and which are below. They then buy or sell assets to bring the portfolio back into alignment with the original strategy.
  4. Timing: Rebalancing can be done on a regular schedule (like annually or semi-annually), or based on the degree of deviation from the target allocation.
  5. Benefits: The primary benefits of rebalancing are maintaining a consistent risk level in the portfolio and potentially improving returns by systematically buying low and selling high.
  6. Tax Considerations: In an IRA, rebalancing typically doesn’t have immediate tax implications, since IRAs offer tax-deferred or tax-free growth, depending on the type of IRA. However, tax implications might arise when withdrawals are made.
  7. Automated Rebalancing: Some IRA accounts offer automated rebalancing services, where the portfolio is automatically adjusted at set intervals to maintain the target asset allocation.

Rebalancing is a fundamental aspect of portfolio management in the IRA industry and is crucial for aligning investment strategies with changing market conditions and personal financial goals.