When financial markets shift, they can impact the balance of different types of assets within a portfolio. Rebalancing is a savvy tactic when investments become overweighted in some areas and underweighted in others.

What do we need to rebalance?

Asset allocation is a commonly used term in the investment realm – the percentage we allocate to different classes or types of investments. Think of your portfolio as a pie. What is the proportionate share of the pie you attribute to each asset class?

Cash or cash equivalents such as money market funds, short-term certificates of deposit, savings accounts, and checking accounts are all examples of this class of assets.

Fixed income—more commonly thought of as bonds—represents another asset class. When we own bonds, we are the lenders. As bondholders, we lend our funds in exchange for interest payments and an agreed-upon timeline for our principal’s return.

Equities, otherwise known as stocks, make up another asset class. When we own stock, we own a piece of a business. Our investment expectation is to see an appreciation in our holding and in some cases an income stream from dividends.

Real estate – real property is yet another class of assets. We may own vacant land, residential property, or a commercial building. We can alternatively own a derivative of actual property through a real estate investment trust.

Commodities are different from conventional equity, income, and cash asset categories. They are the raw materials of industry and commerce. Think copper, steel, concrete, and agricultural products.

To rebalance, we must first have a plan for our investment strategy. Do you have a well-thought-out premise? If not, start by focusing on your foundation. Then, when investments shift due to market fluctuation, return to your foundation. Pare positions that have grown disproportionately and add to diminished holdings that have declined.

Every market can present opportunities and provide valuable reminders. Periodically reassess your plan and confirm that your investments align with your intended strategy. If the allocation or percentage of one more asset type is out of your intended proportion, it’s time to rebalance.

Suzanne Hazlett, MBA, CIMA®, CFP®, is a Certified Investment Management Analyst® and CERTIFIED FINANCIAL PLANNERTM professional. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC. HAZLETT WEALTH MANAGEMENT, LLC is independent of Raymond James and is not a registered broker/dealer. 675 Sun Valley Road, Suite J1 + J2, Ketchum, Idaho, 83340 208.726.0605 HazlettWealthManagement.co