Portfolio rebalancing is one of the most important disciplines in investing. It helps keep risk in check, ensures diversification, and aligns investments with goals. Yet many investors repeat the same mistakes year after year. Retirees especially pay the price when portfolios drift off track. Here are 10 common portfolio rebalancing mistakes to avoid.
1. Ignoring Rebalancing Altogether
Many investors never revisit their portfolio after the initial setup. Over time, gains in one area throw off balance. Retirees relying on stability face higher risk. Rebalancing is essential maintenance. Neglect is the biggest mistake of all.
2. Rebalancing Too Often
On the flip side, some investors rebalance monthly or even weekly. This overreaction creates unnecessary costs and taxes. Portfolios need time to grow before adjusting. Retirees especially benefit from patience. Balance requires rhythm, not panic.
3. Letting Emotions Drive Decisions
Fear and greed influence rebalancing decisions. Selling winners too quickly or clinging to losers can backfire. Retirees need discipline over emotion. Sticking to a plan prevents costly missteps. Rational choices preserve returns.
4. Overlooking Tax Consequences
Rebalancing in taxable accounts often triggers capital gains. Retirees withdrawing income may worsen tax bills. Ignoring tax strategy reduces net returns. Planning rebalancing in tax-advantaged accounts helps. Smart investors weigh taxes before trading.
5. Using the Wrong Benchmarks
Comparing portfolios to arbitrary indexes leads to confusion. Retirees should match rebalancing to their goals, not just the S&P 500. Using the wrong benchmark creates false confidence. Alignment matters more than comparisons. Benchmarks should guide, not dictate.
6. Forgetting About Bonds and Cash
Stocks dominate the conversation, but bonds and cash need attention too. Retirees especially depend on fixed income for stability. Ignoring these categories skews risk levels. True balance requires full portfolio review. Neglecting bonds undermines security.
7. Not Considering Fees When Rebalancing
Frequent trades generate costs that eat into returns. Retirees making small adjustments may spend more than they save. Ignoring fees makes rebalancing counterproductive. Low-cost strategies like ETFs ease the burden. Every dollar saved counts.
8. Treating Target-Date Funds as “Set and Forget”
Target-date funds rebalance automatically, but they don’t fit every retiree’s risk tolerance. Assuming they’re perfect without review is dangerous. Market conditions and personal needs vary. Even target-date investors should reassess. Automation is helpful, not flawless.
9. Rebalancing at the Wrong Times
Making adjustments during panic-driven downturns locks in losses. Retirees need discipline to wait for calmer markets. Timing matters just as much as frequency. Acting impulsively hurts long-term outcomes. Rebalancing works best on schedule, not emotion.
10. Ignoring Income Needs in Retirement
Retirees sometimes rebalance without considering withdrawal strategies. Selling income-producing assets at the wrong time undermines stability. Income planning should guide adjustments. A portfolio is more than percentages—it’s a retirement paycheck. Ignoring this link is costly.
The Takeaway on Rebalancing
Rebalancing protects portfolios, but only if done wisely. Avoiding these 10 mistakes ensures the strategy works as intended. Retirees benefit most from disciplined, tax-smart, and goal-aligned rebalancing. Portfolios need care, not chaos. The right rhythm sustains both growth and peace of mind.
How often do you rebalance your portfolio, and do you follow a schedule or adjust when the market changes?
You May Also Like…
Teri Monroe started her career in communications working for local government and nonprofits. Today, she is a freelance finance and lifestyle writer and small business owner. In her spare time, she loves golfing with her husband, taking her dog Milo on long walks, and playing pickleball with friends.
Read the full article here
