Giving Investment Portfolios a Yearly Checkup January is a good time of year to look at your portfolio to determine which investments have done well and what to change. Should you consider a rebalancing act for your money?
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Giving Investment Portfolios a Yearly Checkup

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Giving Investment Portfolios a Yearly Checkup

Giving Investment Portfolios a Yearly Checkup

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STEVE INSKEEP, Host:

Friday is the day that we talk about your money, and financial experts see January, this month, as a good time to think about rejiggering your investments. We're going to talk about this with Jonathan Clements. He's a financial writer for the Wall Street Journal and a regular guest here. Jonathan, welcome to the program once again.

JONATHAN CLEMENTS: Great to be with you, Steve.

INSKEEP: Pretty good year for the stock market. Does that mean I should be pouring more of my savings into stocks?

CLEMENTS: And that's why a lot of financial advisors will say to you what you really want to do is rebalance your portfolio, and after a great year like 2006, probably what that'll mean is you should be cutting back on stocks.

INSKEEP: Oh, because if I had any stocks or a mutual fund or whatever, it probably did well. It grew and now it made some money. Maybe I ought to get that money out of stocks?

CLEMENTS: Well, you really have to take a step back. Before you get to the idea of rebalancing, what you need to do is to have some sort of portfolio framework. You need to have a target asset allocation.

INSKEEP: So the first thing is just to figure out how I'm going to balance everything, what kind of mix do I generally want, then I look at what I've got?

CLEMENTS: And just the part of keeping your portfolio's risk level under control, you want to scale back that percentage that you have in stocks. You bring it back from 66 to 60.

INSKEEP: That's got to be a hard step for a lot of people to sell off the investment that's been doing well.

CLEMENTS: Is this as good a time to be buying as it was in early 2002? Clearly not. This is the time when people should be thinking about scaling back their stock exposure.

INSKEEP: Well, now I suppose right now there are people on their computers rebalancing their portfolios every two hours, and there are other people who've never done this. How often should you do it?

CLEMENTS: That said, if people haven't rebalanced their portfolio recently, I would encourage them to do it now because we have seen these long trends and the momentum may start to fade and we may start to see some reversal.

INSKEEP: So if I agree that I should be a little leery of stocks and maybe spread the money around elsewhere, how do I - as an average person without a lot of time - figure out where the best place is to put my money?

CLEMENTS: So if you're going to do the sales, do it in your 401k plan or do it in your individual retirement account where you don't have to report those transactions to Uncle Sam.

INSKEEP: Okay. Jonathan, thanks very much. Good talking with you again.

CLEMENTS: My pleasure, Steve.

INSKEEP: Jonathan Clements, financial columnist for the Wall Street Journal.

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