How often should I rebalance my 401(k)?

I have been investing in a 401(k) for over 5 years and have never rebalanced my portfolio. How often should I rebalance?

Well, you are not alone in ignoring the implications of rebalancing. According to a study by The Wharton School, 79% of 401(k) participants make no trades within their account over a 2-year period. Our studies indicate you should rebalance your portfolio on an annual basis.

When you rebalance you force yourself to maintain the level of risk you originally established. If you do not rebalance during a bull market your portfolio will grow beyond your risk tolerance as your equities become a bigger percentage of your portfolio. And, in a period of declining prices, your equities will become a smaller percentage of your portfolio than they should be.

The other powerful aspect of rebalancing is it forces you to sell asset classes that are relatively high and reinvest in asset classes that are relatively low. It is the only way I know that investors are likely to buy low and sell high.

In most 401(k)s there is no cost to rebalance. I suggest you mark your calendar to make the changes on the same day each year.

IMPORTANT DISCLOSURE: The specific content of this message is intended strictly for informational and educational purposes. Such content is not based on knowledge of any reader's individual needs or circumstances and should not be construed as investment or tax advice. Any investment or tax decisions made are ultimately the responsibility of the individual.