Everyone loves a winner. If an investment is successful, most people naturally want to stick with it. But is that the best approach?
It may sound counterintuitive, but it may be possible to have too much of a good thing. Over time, the performance of different investments can shift a portfolio’s intent – and its risk profile. It’s a phenomenon sometimes referred to as “risk creep,” and it happens when a portfolio has its risk profile shift over time. It's one thing we monitor when managing our TruMix client investment portfolios.
When deciding how to allocate investments, many start by taking into account their time horizon, risk tolerance, and specific goals. Next, individual investments are selected that pursue the overall objective. If all the investments selected had the same return, that balance – that allocation – would remain steady for a period of time. But if the investments have varying returns over time, the portfolio may bear little resemblance to its original allocation.
How Rebalancing Works
Rebalancing is the process of restoring a portfolio to its original risk profile.1
There are two common ways to rebalance a portfolio. One is by directing new contributions toward underweighted areas, helping restore your intended allocation. The other involves trimming outperformers to bolster lagging assets—an approach that encourages disciplined, long-term habits.
Rebalancing periodically helps align your portfolio with your goals and risk tolerance, especially as your circumstances or the market environment shift over time. It's something TruMix automatically does on accounts we manage. You can also set up automatic rebalancing with many 401(k) providers as well.
Shifting Allocation
Over time, market performance can shift the balance of your portfolio, potentially increasing or decreasing your exposure to risk. For example, if equities outperform other assets, your portfolio may drift from its original allocation. Rebalancing helps realign your investments with your intended strategy. While all investing involves risk, staying grounded in your goals, time horizon, and comfort with risk can help guide thoughtful adjustments over time. Regular check-ins can ensure your portfolio continues to reflect your evolving financial picture
- FINRA.org, 2023
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2025 FMG Suite.
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