Asset allocation is your target mix of stocks, bonds, and cash. Without periodic monitoring, your allocations may stray considerably from your target allocation.
For you to maintain your asset allocation and risk-control strategies, you should:
- Check your asset class weightings semi-annually, or minimally annually.
- Rebalance whenever any asset class has strayed more than 5% from your target allocation.
- Time your rebalancing to coincide with a memorable date, such as a birthday or an anniversary.
It is best to rebalance tax-deferred accounts (401(k) or IRAs) first, since there are no tax consequences. Also, you should determine the amount of any related transaction costs.
