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How to Use Volatility as a Chance to Rebalance at a Discount

Published on by Beth Germann in Wealth Management

How to Use Volatility as a Chance to Rebalance at a Discount

Current volatility in the market can often allow emotions to interfere with investment decisions. This is the importance in establishing an investment strategy for the long term so that in difficult times it is easier to stay the course. However, these turbulent times also can reveal potential opportunities in the market that can add value to your portfolio.

There are a couple of ways to take advantage of these market opportunities. One is if you hold a certain amount of cash in your portfolio as a rule – this allows an investor to be able to take advantage of value investments when they are available. Alternatively, if an investor is in the position to, this could be a market in which a person considers putting additional cash into their portfolio. If these are not possibilities, it might be time to rebalance your asset allocation or modify your diversification.

Rebalancing means adjusting your portfolio to get it back to your original target allocation. In today’s market, it often makes sense to first determine whether that original target is still appropriate for your needs. If it makes sense to return to your original allocation or establish a new one, there are two ways to proceed. You can sell securities in some asset classes and invest the proceeds in others, and/or redirect new investment dollars into selected asset classes until the target allocation is reached.

If your current allocation is appropriate, but there are concerns with your overall level of diversification, it’s possible to shift some investments within a given asset class. Keep in mind that selling securities can have tax consequences, depending on account type.

Asset allocation and diversification can help manage investment risk and might better position your portfolio for the future. The benefit of market turmoil is that you may be able to acquire some investments at a discount relative to what you would have paid when the market was up.

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Trying to manage investment risk during these times may require an established strategy. If you have questions about how you can mitigate the risk of the market for your investments, feel free to call us at 513-241-8313 or click here to contact us. We look forward to discussing your concerns.


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