If you’re a retirement saver yourself, and you’ve seen the value of your portfolio triple over the past decade, it may be time to rebalance.
Rebalancing means changing the mix of assets in the portfolio to bring it in line with your investment goals. Right now, for most retirement savers, that may mean selling stocks and buying bonds.
It may seem crazy to sell a stock when the market is rising. But bull markets don’t last forever. Improvement can come at any time. And if you’re approaching retirement, investment experts say, you need some savings in conservative assets.
“It’s all just making sure you have a lot of eggs in different baskets,” said Heather Knight, vice president and national brokerage coach at Fidelity Investments.
Why should retirement savers rebalance?
According to Knight and other investment experts, there are at least two good reasons why DIY savers should consider rebalancing in 2026.
There has been an incredible rise in stocks. The value of the S&P 500 has nearly quadrupled in a decade.
By comparison, the bond market has been relatively flat. And so, if you started the decade with a set percentage of stocks and bonds, that’s probably changed.
“For the sake of argument, let’s say it’s a 70-30 mix,” said Hannah Quinton, vice president and branch manager of Charles Schwab in San Mateo, California. “Now, all of a sudden, the market has grown, and it’s become chaotic.”
That’s the first reason. Here’s the second: Stocks have performed so well in recent years, and bonds have performed so well, that many investors question the wisdom of the classic 60-40 portfolio, considering it too conservative.
“I’ve noticed a much greater emphasis on equities in investors’ portfolios,” said Christine Benz, director of personal finance and retirement planning at Morningstar. “Part of it is, let’s face it, Bond hasn’t made a good case for itself over the last two decades.”
Retirement savers’ bonds have turned sour
Bonds are believed to provide safe, predictable income and serve as a vehicle for good stocks. But bonds have had some tough years. Between August 2020 and October 2022, the benchmark Bloomberg Bond Index fell 18%.
Those constraints, and a host of other stock options, have led to the idea that the 60/40 rule is dead. Many retirement savers keep all of their investments in stocks until they retire, betting that stocks will continue their historical performance.
But here’s the problem: you never know when the next correction will come.
“It’s been a while since we’ve had a market shock that scared us,” Benz said.
In the Great Recession of 2008, the Dow Jones lost more than half its value. The index did not fully recover until 2013.
And that’s why you might want to rebalance.
“A 100% stock portfolio, it’s going to be very volatile,” said Sabino Vargas, senior financial advisor at Vanguard. “We don’t know when the stock market will recover or may even go into recession.”
Who needs rebalancing?
Not everyone needs rebalancing.
If a professional oversees your investments, they will worry about adhering to your investment goals.
If your retirement savings are invested in target-date funds, rest assured: they’re automatically rebalanced.
The same is true for other “all-in-one” or “balanced” funds, which maintain a mix of stocks, bonds, and other assets, usually closer to a 60/40 mix.
“If you have any type of all-in-one fund, it has automatic rebalancing,” Benz said. “And that’s an incredibly powerful thing.”
How do you set investment goals?
Everyone’s retirement plan is different and their tolerance for risk is also different. Some investors choose a 60/40 portfolio. Others invest entirely in stocks until they approach retirement, and only then do they diversify.
“We always think about 60-40, but the reality is that doesn’t match everyone’s goals,” Knight said.
Schwab suggests a sample asset mix based on your time frame. If you are more than 15 years away from retirement and you are investing aggressively, you might have 95% stocks, 5% cash. 10 years from retirement, you might have 60% stocks, 35% bonds, and 5% cash. Within 3 to 5 years of retirement, you can move to 50% bonds, 20% stocks, and 30% cash.
Also remember that diversification is not a simple question of stocks and bonds. There are many meaningfully different categories of stocks: small-cap vs. large, value vs. growth, US vs. non-US in different economic sectors. There are many types of bonds.
If you only hold US stocks, or mostly tech stocks, this alone may be a reason to rebalance.
When should you rebalance?
The time to rebalance is when your portfolio “deviates” significantly from your goals. This may be because some of your assets are becoming more valuable. Or, the value of an asset may be declining, as happened with stocks in 2008. Your investment goals may be changing, perhaps because you are getting closer to retirement.
“Rebalancing is an action to be taken depending on the circumstances,” Quinton said. “This may reduce the risk or increase the risk, depending on the situation.”
A rule of thumb suggests rebalancing when any component of the portfolio falls 5 percentage points below your target. If your goal is 75% stocks, and your portfolio is 80% stocks, you may want to rebalance.
How often should you rebalance?
Experts say that if you are a DIY investor, you should review your portfolio from time to time. How often is up to you.
“You can look at it every 90 days, every 6 months, once a year,” Vargas said. “You want to learn a schedule you can stick to.”
How do you rebalance?
Experts say there’s no wrong way to rebalance, as long as you follow a schedule and end up with an asset mix close to your goals.
Consider a service like Vanguard’s Portfolio Watch or Fidelity’s Portfolio Analysis, which will tell you about your asset mix and whether you can be “overweight” or “underweight.”
You can rebalance by buying and selling, or making new contributions. You can also change your 401(k) allocation, so that future contributions go toward underrepresented assets in your portfolio.