Balancing Your Portfolio

Radio Transcript, 2 minutes 25 seconds, for use during week of September 3.

Description: Ira, Susan, and Penny talk about asset allocation and the importance of monitoring your portfolio and rebalancing regularly.

Announcer: Invest Wisely comes to you from Iowa State University Extension through a grant from the Investor Protection Trust, providing investor education on the web at: investorprotection.org.

Susan: Penny, we talked about how important asset allocation is and that Ira and I might want to have different levels of stocks, bonds, cash and other investments in our portfolios because we have different goals and are at different life stages.

Penny: That’s exactly right.  Generally, the younger you are, the more risk you can afford and you may choose to have a higher percentage of your portfolio in stocks.  As you get closer to retirement or actually retire as Ira has, you’ll want to reconsider your investment goals and, perhaps, adjust your mix of assets.

Ira: So my stage in life can be one factor in determining my asset allocation

Penny: You’ll also want to consider changing your asset allocation when there are changes in your risk tolerance, in your financial situation, or in your financial goals.  And then . . . at least once a year check to see if your investments are still in line with your plan. 

Susan: What do you mean?

Penny: It’s important to periodically monitor your portfolio and rebalance it if necessary.  Some of your investments will grow faster than others.  For example, if you have an asset allocation strategy where stock investments are to comprise 40% of your portfolio but because of the rise in the stock market, it’s now 55% of your portfolio, you’ll want to make adjustments to maintain your original allocation. 

Ira: So, in that situation, I might want to sell some of my stock investments and purchase additional investments in other categories, say, bonds or cash?

Penny: Yes.  Or you might leave your stock investments as they are but use additional money to purchase securities in investments categories that are now underweighted in your portfolio.

Susan: So, we want to decide on the best asset allocation for our particular situation and we also will want to periodically review our portfolios to maintain that asset allocation.

Penny: Yes.  And remember, for more information, visit the ISU Extension website at extension.iastate.edu and look for ‘Invest Wisely.’