Why December Portfolio Rebalancing Could Save Your Retirement

Portfolio rebalancing might not get your heart racing, but it can greatly affect your retirement success. Research shows that a rebalanced portfolio beat the traditional buy-and-hold strategy by more than 100 basis points yearly over 5 years within the S&P 500 universe. You might be missing out on this substantial growth.

Your portfolio’s allocations can drift far from their planned targets without regular rebalancing. Take this example: A portfolio starting with 60% global equities and 40% global bonds at the end of 2003 would have moved to 80% in equities by the end of 2022 if left untouched. Your retirement consultant in Fresno CA will explore how this unexpected risk exposure could wreck your retirement plans when markets turn south.

Why December is a Critical Time to Rebalance

December presents a perfect opportunity to rebalance your portfolio because several unique financial factors meet at year-end.

Market liquidity patterns experience significant changes during this period. Trading volumes drop to 45-70% of normal levels between December 23 and New Year’s Day. This creates wider spreads and different market dynamics that experienced investors can use to their advantage. The fixed income markets see volume reductions of 20-40% in Europe and up to 50% in Asia.

The final month of the year gives investors their last chance at tax-loss harvesting—selling underperforming investments to offset capital gains. You can offset up to $3,000 of ordinary income while positioning your portfolio for future growth. The IRS lets investors carry forward excess losses to future tax years, which helps maximize tax efficiency over time.

How to Rebalance Your Portfolio Effectively

A systematic approach, not emotional decisions, helps you rebalance your portfolio effectively. My experience shows three strategies that work best, and each offers unique benefits.

The first strategy adjusts your portfolio at fixed times – usually once or twice a year. Studies show that yearly rebalancing works just as well as doing it more often, and every 2-3 years might be enough.

Your second option triggers changes when asset allocations move past set limits. Many experts suggest using the 5/25 rule – you should rebalance when an asset class moves 5% absolute or 25% relative from your target.

What Retirees Should Consider Before Rebalancing

Retirees must think about more than simple asset allocation adjustments when rebalancing their portfolios. Their retirement years bring unique financial risks that just need careful planning.

Many retirees face a reality gap in risk assessment. They feel comfortable with a potential 10% loss of savings. However, their portfolios could drop 30% or more during market downturns. These losses hit retirees harder since they don’t have decades to bounce back.

Your asset allocations should evolve as you age. Financial experts recommend that retirees between 60-69 years should keep a moderate portfolio (60% stocks, 35% bonds, 5% cash). Those between 70-79 years should move to safer investments (40% stocks, 50% bonds, 10% cash).

Conclusion

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”

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Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party . The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.

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