Rebalancing your investment portfolio annually can help shield you from risk over the long term. At the start of the year, you might decide how much to invest in different types of assets — stocks, bonds, etc. But over time, market changes can shift that balance. Let’s say you started with $10,000, planning to split it evenly between stocks and bonds. If stocks do well, an initial $5,000 might be worth $7,000 by the end of the year, while bonds only rise to $5,500. Now your portfolio is out of balance, with more money in stocks than you originally planned. To get back to your target balance (in this case, 50/50), you’d need to either sell some stocks or buy more bonds. It’s a way to help you stick to your original investing strategy, and mitigate your risk exposure. Just keep in mind that selling stocks that have gone up in value could trigger taxes if you are working with assets that are outside of tax-sheltered accounts, like a TFSA.
