ETF Portfolios: The Important Step You Shouldn't Miss | ETF Trends

The markets and exchange traded funds (ETFs) have been topsy-turvy this year, first trending higher, then falling, then trading in a narrow range.

Dan Caplinger for The Motley Fool comments that the markets have corrected by more than 10% since the highs in April. What does that mean? It’s time to rebalance your portfolio. [5 Things to Know When You’re Hunting for ETF Yields.]

Don’t wait until the market has moved in a big way to rebalance. It’s important to rebalance at other times, too:

  • Too Much Company Stock: Generally, company stock should not make up more than 20% of your overall portfolio.
  • Life Event: Consider rebalancing if you’re married and your spouse gets another job and another retirement account. Also, consider one another’s portfolios, and view them as one investment unit rather than separate. Divorce is another instance when a rebalance is needed.
  • If Plan Choices Change: Sometimes an employer will switch plan providers altogether, which would require new investment decisions. You might have to rebalance based on better or more limited choices, or even do some of the rebalancing outside of the 401(k).
  • Getting Close to Retirement: Rebalancing becomes more critical as you approach retirement. When you’re about three to five years away from retirement, you want to assume a little less risk, and the further from retirement, you want to take on more risk for more reward.

You should rebalance your portfolio at regular intervals to make sure that stale investments are sold off in exchange for up-and-comers or temporary bargain investments. You may also consider looking at sectors, regions or areas that have been especially hard, for instance energy or technology, since the long-term outlook may be justify the investment, suggests Caplinger. [How to Build a Sector ETF Portfolio.]

If you’re a premium member, you can use our portfolio-building tools, which include rebalancing alerts so you never again neglect to take this important step! Get more details here.

For more information on investing, visit our ETF 101 category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.