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7 Tips To Annually Rebalance Your Retirement Accounts

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When it comes to retiring, investing in the right stocks is always hard to decide. The harder part is managing your money during your retirement. It is suggested in the financial world that people rebalance their investment accounts annually. If you have a couple of those accounts and investments, ask yourself the following questions:

  • Do you know what your investments earned over the past year or few?
  • Do you know whether or not your investments have beaten their respective benchmarks?
  • Do you have the right asset allocation?
  • Are you saving enough to retire?
  • If you’re retired, will your money last as long as you do?

In reality, only you can truly secure a financially stable future during your retirement. Here are a few steps on how to give your retirement accounts an annual rebalance:

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1. Review Your Goals

It is always important to review one’s goals. Ask yourself what you intend for your portfolio to accomplish. Keep in mind current and future risk tolerance, figuring out ways to meet financial goals without leaving your comfort zone. Give yourself a clear idea of what you intend to accomplish before beginning a rebalance.

Remember that the point is to stay on track to meet your goals.

2. Rebalance Regularly

To avoid being at the mercy of the markets, create a schedule to rebalance your accounts. Choose to rebalance either every quarter, twice a year, or even once a year. Go with what is most comfortable rebalance your investment plan with reason, instead of reaction short-term driving factors of the market.

Some might suggest that if your asset allocation drifts by 10%, a rebalance might be in order, even if it does not match your intended schedule.

3. Use Fundamental Analysis

With a long-term portfolio in your pocket, it is important to focus more on the bigger picture rather than short-term price action. Take a look at your investment’s fundamentals (profitability, revenue, assets, liabilities, and growth potential).

Maybe it’s the time to sell and buy something more suited to you. Fundamental analysis will allow you to make decisions based on more long-term potential. If something in the fundamentals has changed, it might be best to ‘take the l’ and move on and build a stronger portfolio.

4. Evaluate Fees

Aside from simply looking at your investments, it is doubly important to consider your fees. Returns can be severely affected by the fees you pay, reducing your future capabilities of your retirement portfolio. Compare option for the funds included in the portfolio. It might be possible to get similar funds for fewer fees.

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Other fees to consider are anything from transaction fees to asset management fees. If you can find suitable assets for fewer fees, go ahead and switch. You’ll see better returns and faster growth.

5. Consolidate Your Accounts

Investors of retirement age often have their money spread over different accounts, making it hard to keep track of all their investments. One of the best ways to consolidate your accounts and make investments easier to manage is by using finance software such as Quicken. It places all investment in one place, giving users a snapshot of their whole portfolio. Other portfolio tracking used may be from Yahoo! Finance, Morningstar, or the Fool’s Scorecard.

Or you can go old school, creating your own spreadsheet or downloading a template.

6. Use autopilot

Retirement plans such as a 401(k) or similar plans often offer auto-rebalancing as an additional feature. This gives you the choice to set a specific interval for the account to be rebalanced to a selected allocation.

Serving two purposes, it first relieves you of the need to remember a schedule. Secondly, take the emotion and hesitation out of deciding what to do you with funds in your holdings.

7. Take a total portfolio view

While you are rebalancing, step back and take a total portfolio view, including taxable accounts and retirement accounts such as an IRA or 401(k). Doing this will help with tax-efficiency and prevents you from taking too much or too little risk overall.

Whether you are of retirement age or part of the younger generation, it is important to manage investment portfolios properly to prevent substantial loss. If you are young, are you fully prepared to retire when the time comes? If you are part of the older crowd, how have portfolio investments helped your finances?

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