This has been an incredible year for stocks. But smart investors also realize that 2013's big gains in the stock market has left their portfolios riskier than they were at the beginning of the year, and they're taking steps to control that risk. What should you do?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the key money move to make: rebalancing your portfolio. Dan notes that with bond ETF iShares Aggregate Bond (NYSEMKT: AGG ) down for the year while Vanguard Total Stock (NYSEMKT: VTI ) has risen 32%, a portfolio balanced 50/50 in stocks and bonds at the beginning of the year now has a 60/40 bias toward stocks, with attendant higher risk. Dan also goes through the use of rebalancing in subsectors of the stock market, using biotech Gilead Sciences (NASDAQ: GILD ) , various health-care stocks, and utilty FirstEnergy (NYSE: FE ) to illustrate the concept. Dan concludes that rebalancing can help you avoid unnecessary surprises if the market reverses course and heads lower in 2014.
Be smart with your investing
For many unfortunate investors, the need for rebalancing is trumped by the need to get invested in stocks in the first place. Many investors have stayed out of the market in recent years and therefore missed out on huge gains, putting their entire financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.