Tags: Coumarianos | rebalance | stocks | bonds

Former Morningstar Analyst: It Might Be Time to Rebalance Your Portfolio

By    |   Wednesday, 14 January 2015 11:48 AM

The S&P 500 has tripled from its March 2009 low, and if you have been heavily invested in stocks during that period, the equity weighting of your portfolio likely increased substantially.

So it may be time to rebalance your portfolio, says John Coumarianos, a former Morningstar analyst who now runs the website Institutional Imperative.

"Investors have enjoyed six years of generous stock returns—gains that have probably taken your portfolio out of balance," he writes in an article for MarketWatch.

"So it's a good time to take a sober look at your holdings by asset class. If your portfolio is out of sync with your risk tolerance and life goals, fix it by rebalancing."

Coumarianos offers a powerful example of his point. Say you had a $100,000 portfolio devoted 60 percent to stocks and 40 percent to bonds at the start of 2009.

Using the S&P 500 index as a measure of stocks and the Barclays U.S. Aggregate Index to represent bonds, your portfolio has scored an impressive gain to $208,000. But you now have a 75 percent stock weighting and a 25 percent bond weighting.

That may be too risky for you, depending on your age and investment goals.

"If you return to your prearranged allocation now by trimming stocks, and then stock prices crash, you'll be more inclined to add to your holdings. That's how rebalancing can encourage good investing behavior," Coumarianos writes.

One danger for investors this year could be volatility. Last year, the S&P 500 index experienced no decline of more than three consecutive days. And the CBOE Volatility Index (VIX), which measures expected volatility in the S&P 500, hit a seven-year low in June.

But don't expect those conditions to continue this year, says legendary mutual fund manager Bill Miller, manager of the Legg Mason Opportunity Trust.

"We're likely to get a lot more volatility than we've become used to," he tells The New York Times. "Every time we get a correction or even close to it, everybody flips out. That's more of an observation than a prediction."

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The S&P 500 has tripled from its March 2009 low, and if you have been heavily invested in stocks during that period, the equity weighting of your portfolio likely increased substantially.
Coumarianos, rebalance, stocks, bonds
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2015-48-14
Wednesday, 14 January 2015 11:48 AM
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