Dow Continues to Break New Records

The Dow Jones has broken records four days in a row now.  Today it closed just below 14,000, setting yet another record.

What does this mean to you and your portfolio?

It means it’s time to rebalance your portfolio!  It’s more important than ever to rebalance your portfolio when the market sets new records every day. 

Rebalancing is putting your portfolio back to it’s original asset mix, by selling your winners and buying the losers.  If you don’t rebalance your portfolio when the stock market is doing well, you take more risk in your portfolio because your stock allocation grows to a larger percentage of your portfolio. 

If the market takes a turn for the worse, and your portfolio is heavily weighted in any one asset class (think growth stocks in the late 1990s), you could lose a significant portion of your portfolio.

There are two benefits to rebalancing.  First you put your portfolio back to a level of risk that is appropriate for you (assuming you had the right asset mix to begin with) and second, rebalancing forces you to take some of the profits from your winners, which in turn forces you to buy low and sell high (which is the goal).

So, while many will run out and buy more stocks in hopes that the market will continue to keep setting new records, the smart thing to do is to review your portfolio to determine if you have the right mix of stocks and bonds to meet your investment goals, and make adjustments accordingly.