How to Rebalance Your Portfolio

Everyone's saying you should give your investments a checkup, but many don't know what to do. Here's what you need to know.

Feb 9, 2014 at 1:05PM

The Dow Jones Industrials (DJINDICES:^DJI) had a great 2013, but the average has gotten off to a terrible start this year. It's important to check your risk level and rebalance your portfolio to avoid unnecessary losses, but what exactly is involved in rebalancing?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, goes through how you can rebalance your portfolio easily. Dan notes that the key to rebalancing is having an asset allocation that properly balances stock investments like SPDR S&P 500 (NYSEMKT:SPY) and iShares Russell 2000 (NYSEMKT:IWM) on the one hand with bond investments like iShares TIPS Bond (NYSEMKT:TIP) and PIMCO Total Return (NYSEMKT:BOND) on the other. By selling overweighted asset classes and buying underweighted ones, you can keep your risk in line and benefit from market moves.

Why protecting your investments is so important
The losses that many investors suffered in 2008 came from not rebalancing, and it drove many people out of the stock market for good. Yet that's almost always the wrong move. 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.

Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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