Steps to a balanced portfolio(finished)

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Post on 30-Jul-2015




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1. Steps to a Balanced Portfolio 2. Year-end is a great time to take a close look atyour finances. Because volatile markets canskew the percentage of stocks, bonds and cashin your portfolio, its important to give yourportfolio an annual check-up to make sure yourallocation remains aligned with your situationand goals. 3. Its easy to do in three simple steps: 4. Step one: Develop a Target AssetAllocationGiven your individual financialcircumstances and goals, whatpercentage of your portfolioshould be dedicated to eachasset class? For example, if youreclose to retirement, you may wantthe majority of your portfolio in income investmentssuch as cash and bonds, with a smaller percentage instocks to protect your portfolio against inflation. Ifyoure younger, and can tolerate the fluctuations ofthe stock market over time, you may want to put themajority of your investments in stocks. 5. Step two: Evaluate your portfolioNext, determine if your actualinvestments match your targetasset allocation. If they do, yourportfolio is in good shape. Iftheyre off, consider just how far off they are.Since making frequent changes to your portfoliocan have tax consequences, you may only wantto alter the asset mix if its off by more than fivepercentage points. 6. Step three: RebalanceIf your asset allocation hasdrifted significantly away fromyour target, you can rebalanceyour portfolio in a variety of ways.For example, you can shift fundsout of the asset class that exceeds its target into theother investments, or you can simply add funds tothe asset class that falls below its target percentage.You can even direct dividends from the asset classthat exceeds its target into the ones that are belowtheir targets. 7. This will bring your portfolio back into balance,but because of tax implications, its important totalk to your advisor before making any significantchanges to it. 8. Randy