If you are a do-it-yourself retirement saver, and you have watched your portfolio triple in value over the past decade, it may be time to rebalance.
Rebalancing means changing the mix of assets in a portfolio to bring it in line with your investment goals. Right now, for most retirement savers, that could mean selling stocks and buying bonds.
It might sound crazy to sell stocks when the market is soaring. But bull markets don’t last forever. A correction could come at any time. And if you’re approaching retirement, investing experts say, you need some savings parked in conservative assets.
“All of this is just making sure that you have a lot of eggs in different baskets,” said Heather Knight, vice president and national brokerage coach at Fidelity Investments.
Why Should Retirement Savers Rebalance?
There are at least two good reasons why DIY savers should consider rebalancing in 2026, according to Knight and other investing experts.
Stocks have had an incredible run. The S&P 500 has nearly quadrupled in value in a decade.
The bond market, by comparison, has been relatively flat. And so, if you started that decade with a set percentage of stocks and bonds, it has probably changed.
“Let’s say for the sake of argument it’s a 70-30 mix,” said Hannah Quinton, vice president and branch manager of Charles Schwab in San Mateo, California. “Now, all of a sudden, the market has shot up, and it’s out of whack.”
That’s the first reason. Here’s the second: Stocks have done so well in recent years, and bonds have performed so fitfully, that many investors question the wisdom of the classic 60-40 portfolio, viewing it as too conservative.
“I have sensed a lot of emphasis on equities in investors’ portfolios,” said Christine Benz, director of personal finance and retirement planning at Morningstar. “Part of it is, let’s face it, bonds have not made a great case for themselves over the last two decades.”
Retirement Savers Have Soured on Bonds
Bonds are supposed to deliver safe, predictable income, and to serve as a foil to mercurial stocks. But bonds have had some rough years. Between August 2020 and October 2022, a benchmark Bloomberg bond index plunged 18%.
Those hiccups, and a profusion of other stock alternatives, have spawned talk that the 60/40 rule is dead. Many retirement savers keep all of their investments in stocks right up to when they retire, betting that stocks will continue their historic run.
But here’s the problem: You never know when the next correction is coming.
“It has been a while since we had a market shock that scared us,” Benz said.
In the Great Recession of 2008, the Dow Jones lost more than half of its value. The index didn’t fully recover until 2013.
And that’s why you might want to rebalance.
“A 100% stock portfolio, it’s going to be very volatile,” said Sabino Vargas, a senior financial adviser at Vanguard. “We don’t know when a stock market correction or even a recession might take place.”
Who Needs to Rebalance?
Not everyone needs to rebalance.
If a professional oversees your investments, they’ll worry about following your investing goals.
If your retirement savings is invested in target-date funds, rest assured: They rebalance automatically.
The same goes for other “all-in-one” or “balanced” funds, which maintain a blend of stocks, bonds and other assets, typically hewing close to the 60/40 mix.
“If you own any sort of all-in-one fund, it’s automatic rebalancing,” Benz said. “And that’s an incredibly powerful thing.”
How Do You Set Investing Goals?
Everyone has a different retirement plan and a unique tolerance for risk. Some investors choose the 60/40 portfolio. Others invest entirely in stocks until they’re approaching retirement, and only then do they diversify.
“We always think of 60-40, but the reality is, that doesn’t match everybody’s goals,” Knight said.
Schwab suggests a sample asset mix, based on your time horizon. If you’re more than 15 years from retirement and investing aggressively, you might have 95% stocks, 5% cash. At 10 years from retirement, you could have 60% stocks, 35% bonds and 5% cash. At 3 to 5 years from retirement, you might move to 50% bonds, 20% stocks and 30% cash.
Remember, too, diversification isn’t a simple question of stocks and bonds. There are several meaningfully different categories of stocks: Small-cap versus large, value versus growth, U.S. versus non-U.S., in a variety of economic sectors. Bonds, too, come in many flavors.
If you own only U.S. stocks, or mostly tech stocks, that alone could be a reason to rebalance.
When Should You Rebalance?
The time to rebalance is when your portfolio “drifts” significantly from your goals. The reason could be that some of your assets are getting more valuable. Or, an asset could be losing value, as stocks did in 2008. Your investing goals could be changing, perhaps because you’re approaching retirement.
“Rebalancing is the action, based on a set of circumstances,” Quinton said. “It could be scaling back risk or increasing risk, based on the situation.”
One rule of thumb suggests rebalancing when any portfolio component drifts 5 percentage points from your goal. If your goal is 75% stocks, and your portfolio is 80% stocks, you might want to rebalance.
How Often Should You Rebalance?
If you are a DIY investor, experts say, you should review your portfolio once in a while. How often is up to you.
“You could look at it every 90 days, every 6 months, once a year,” Vargas said. “You want to learn a schedule that you can stick to.”
How Do You Rebalance?
There’s no wrong way to rebalance, experts say, as long as you follow a schedule and wind up with an asset mix closer to your goals.
Consider a service like Vanguard’s Portfolio Watch or Fidelity’s Portfolio Analysis, which will tell you about your asset mix and where you might be “overweight” or “underweight.”
You could rebalance by buying and selling, or by making new contributions. You can also change your 401(k) allocations, so that future contributions go to assets underrepresented in your portfolio.
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