citi logo
My Account
PERSPECTIVES

Keeping your balance.

August 22, 2011
Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management

Whenever we get periods of market turmoil like we've had in recent weeks, you will hear financial advisors talk about "rebalancing." What's that? Imagine you had settled on a mix of 60% in U.S. and foreign stocks and 40% in high-quality bonds, certificates of deposit and other conservative investments.

Even if you haven't done any buying or selling since, there's a good chance you don't have a 60%-40% mix today, thanks to all the market turbulence. Depending on when you first bought your 60%-40% mix, today you may have far less in stocks than you intended--or significantly more.

To help get your portfolio back on track, consider rebalancing, possibly once a year or after big market moves. Imagine that, because of the recent swoon in share prices, you now have substantially less than 60% of your portfolio's value in stocks. To get your portfolio back to your target portfolio percentages, you would need to add money to the stock side of your portfolio to build it back up to 60%. By adding to your stocks, you'll likely be better positioned if stocks rally.

But rebalancing isn't principally about boosting performance. Rather, it's about managing risk. By rebalancing, whether it is adding to stocks at a market bottom or lightening up on shares during a bull market, you can help your portfolio stay closer to the risk profile you originally settled on.

One warning: Rebalancing can mean selling investments with capital gains, so it's best done in a retirement account, where selling won't trigger a tax bill. Even with a retirement account, you should consider the investment costs involved when buying and selling. What if you need to rebalance within a taxable account? To reduce the amount of buying and selling you need to do, you might focus on directing dividends, interest and new savings to those parts of your portfolio that have become underweighted.

INVESTMENT PRODUCTS: NOT FDIC INSURED •NO BANK GUARANTEE • MAY LOSE VALUE

The information provided is solely for informational purposes. It is not an offer to buy or sell any of the securities, insurance products, investments, or other products named.

Diversification does not guarantee a profit or protect against a loss.

Investments are subject to market fluctuation, investment risk, and possible loss of principal.

Bonds are affected by a number of risks, including fluctuations in interest rates, credit risk and prepayment risk.

There may be additional risk associated with international investing, including foreign, economic, political, monetary and/or legal factors, changing currency exchange rates, foreign taxes, and differences in financial and accounting standards. These risks may be magnified in emerging markets. International investing may not be for everyone.

Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

© 2011 Citigroup Inc. Citi Personal Wealth Management is a business of Citigroup Inc., which offers investment products through Citigroup Global Markets Inc. ("CGMI"), member SIPC. CGMI and Citibank, N.A. are affiliated companies under the common control of Citigroup Inc. Citi and Citi with Arc Design are registered service marks of Citigroup Inc, or its affiliates.

Sign up to receive the latest news from Citi.

Select Preferences