Top 4 Tips to Successfully Rebalance Your Retirement Accounts Annually

You may have your retirement accounts settled and planned out, but you also have to remember that market prices fluctuate each year. If you are not careful, your portfolio could be at risk of falling out.

That’s why rebalancing and recalibrating your retirement account should be done annually. It is best to do this every January when the new year is just starting out. That period helps you analyze your portfolio’s overall performance, and what needs to be done to align your investments towards your long-term objectives. You can ask for help from a financial advisor, but if you prefer to do it yourself, here are some helpful tips:

Reestablish target allocations.

At the start of each year, it is best to review your finances and check if your accounts are still performing well to reach your targets. You also have to keep in mind your current age, life expectancy, your current assets, and your estimated date of retirement. If you are reaching 50, you might want to consider investing more of your assets in stocks and bonds while keeping a modest percentage in real estate and other long-term assets.

Consolidate accounts to simplify balancing.

If your assets and money are spread on many accounts, it will take much more time and work for you to review and rebalance them every year. The solution is to consolidate these accounts and simplify your spread.

Aside from simplifying the process of allocation and rebalancing, you can also benefit from tax reductions if you are able to separate your taxable accounts from the non-taxable ones. As a rule, your retirement fund should be separated from your other investments that could be levied with higher taxes.

Reevaluate fund returns.

Of course, fund performance is a crucial factor when it comes to reevaluating your investments. If you have high-cost but underperforming funds, consider switching to funds that are more stable (even if they are low to moderate risk investments). Don’t just look at the past year’s performance, factor in at least 3 to 5-year returns. Avoid knee-jerk reactions, because funds can still recover low performances in just over a year or two.

Rebalance your 401(k) and IRA (and make adjustments in your contribution).

Retirement plans that are offered by employers such as your 401(k) benefit from tax reductions, but this does not give you access to other types of funds that can also work as an alternative investment for you. An IRA, on the other hand, gives you access to stocks and funds, and it allows you to diversify your investments as much as possible.

The good thing is, you can recalibrate both your 401(k) and IRA to align with your long-term objectives. Just ask your administrator how! If you have extra cash, you can also add these to any underfunded asset in your IRA. If you want to rebalance, you can take out some from your high-funded or over-performing assets and use that to fund underperforming or underfunded assets.

Another tip that you should keep in mind is to always look forward. Don’t be disheartened if your funds and investments are not doing well this year or last year, you have to keep saving, investing, and revert your funds to your best assets in order to prepare for a great retirement.