Rebalance Your Investment Portfolio to Meet Financial Goals

Investors often face the challenge of maintaining their financial goals in a fluctuating market, leading to the necessity of regularly rebalancing their investment portfolios. Over time, the initial mix of stocks and bonds can shift dramatically, potentially exposing investors to unintended risks.

Understanding the Importance of Rebalancing

When investors create their portfolios, they carefully select a mix of assets to align with their financial objectives. However, as market conditions change, the balance can become skewed. According to Devin Cattelan, portfolio manager at Verecan Capital Management, “Typically, what happens is when you’re invested, the holdings within the portfolio will drift with time, as the market does.”

For instance, if an investor’s initial allocation is 65 percent in stocks and 35 percent in fixed income, an increase in stock prices could lead to a shift to 75 percent stocks. This change necessitates a rebalance to restore the original proportions, which could involve selling some equities and reinvesting in fixed income assets.

Failure to rebalance regularly can result in a portfolio that is riskier than intended. For example, an investor who established a balanced investment in TD Bank and Amazon a decade ago may find that the growth of Amazon’s share price has significantly altered the investment proportions. As Cattelan explains, “You’ll get more volatility in your portfolio than what you were originally intending.”

Strategies for Rebalancing

Investors typically adopt one of two strategies for portfolio rebalancing: strategic or tactical. A strategic rebalance involves a systematic approach, adjusting the portfolio annually or whenever asset allocations drift beyond a predefined threshold of five to ten percent. In contrast, tactical rebalancing focuses on taking advantage of market conditions. For example, if an investor anticipates that stocks will outperform bonds, they may shift their portfolio more heavily towards equities.

Experts recommend reviewing and potentially tweaking a portfolio at least once a year. Tony Salgado, president at AMS Wealth, advises investors to regularly assess their portfolios by asking, “Do I need to tweak?” The answer may vary based on significant life changes or market movements.

When modifying allocations, it is essential for investors to clarify the purpose behind their changes. Salgado notes, “Are you trying to sell a position that has already had a lot of gains, and you want to lock in that gain value?” Understanding the rationale for adjustments helps ensure alignment with long-term goals.

Tax implications also play a critical role in portfolio rebalancing. Investors should consider potential tax liabilities if they are making changes in a non-registered account, as these adjustments could trigger tax bills.

Finding the Right Balance

While annual reviews are beneficial, Cattelan cautions against over-rebalancing. Frequent adjustments may lead to increased transaction fees and capital gains taxes, diminishing overall returns. “There is not a lot of value-add,” he states, emphasizing that excessive rebalancing does not significantly improve returns or reduce risk.

Investors considering rebalancing in response to significant market movements must evaluate their comfort levels with their current asset allocations. Cattelan advises, “Review your asset allocation, review your mix of holdings and determine whether or not you’re comfortable with the weights at that time.”

Salgado shares an anecdote about a client who had 90 percent of their portfolio in high-growth equities. Upon turning 70, he recommended a major rebalance to protect their capital. This highlights the importance of aligning portfolio strategies with individual risk appetites and life stages.

As a final recommendation, both experts suggest consulting with a financial professional before making aggressive changes to a portfolio. Every investor’s situation is unique, and tailored advice can help navigate complex financial landscapes.

This article was first published on September 16, 2025, by The Canadian Press and emphasizes the importance of regular portfolio assessment to stay aligned with financial goals.