Portfolio Rebalancing: The Top 4 Benefits for Retirement Investors
Stay Wealthy Retirement Podcast
Taylor Schulte, CFP®
4.7 • 678 Ratings
🗓️ 9 February 2021
⏱️ 16 minutes
🧾️ Download transcript
Summary
Today I'm kicking off a 2-part series on Portfolio Rebalancing.
In part one, I'm sharing:
- What portfolio rebalancing is
- How and where it fits into your retirement plan
- The top 4 benefits of a systematic rebalancing process
If you want to learn how a simple rebalancing plan can boost long-term investment returns, you're going to love this episode.
Transcript
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| 0:00.0 | Welcome to the Stay Walthy podcast. I'm your host Taylor Schulte, and today we're talking about |
| 0:08.7 | portfolio rebalancing, what it is and the top four benefits to retirement savers. And this is |
| 0:15.8 | part one of a two-part mini series. Next week on the show, I'm going to wrap this all up by sharing all the big mistakes |
| 0:23.0 | and pitfalls to look out for when rebalancing your portfolio. |
| 0:27.1 | For the links and resources mentioned for today's episode, head over to you staywealthy.com |
| 0:32.2 | forward slash 96. |
| 0:34.1 | And we're going to get right into it so I can make best use of your time today. |
| 0:37.9 | So what is portfolio rebalancing? |
| 0:41.9 | Let's just start with making the assumption that for everybody listening, you have a documented asset allocation for your investments. |
| 0:49.6 | For example, you might have 60% in stocks and 40% in bonds. |
| 0:54.2 | Now, in reality, your asset allocation might look more like 20% U.S. stocks, 20% international, 10% emerging market stocks, and so on. |
| 1:03.8 | But for now, out of the gates, let's just keep it simple and focus on a simple asset allocation of stocks versus bonds. |
| 1:14.0 | As I've discussed at length on this podcast, |
| 1:19.3 | it's important to have this allocation written down and formalized on what we call an investment policy statement or also known as an IPS. And the IPS, in addition to noting and |
| 1:26.9 | documenting your target asset allocation, it will also, or it should also outline the parameters under which your portfolio will be rebalanced. |
| 1:36.6 | For example, your IPS might say something like a rebalance will occur if one or more of the underlying asset classes within the portfolio |
| 1:47.1 | varies plus or minus 5% from its target allocation. |
| 1:52.9 | In other words, if you're targeting an allocation of, let's say, 60% stocks and 40% bonds |
| 1:58.9 | and the stock market goes on a tear, your allocation might turn into |
| 2:04.4 | 65% stocks and 35% bonds in which you would be alerted to process a rebalance, that the target |
| 2:12.3 | allocation of 6040 varied by 5% per your investment policy statement and that's your signal to |
| 2:19.4 | rebalance now back to our initial question of what is rebalancing rebalancing |
... |
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