When you first put together your portfolio, you made a conscientious decision about how much you were putting into stocks, bonds, and cash investments like CDs and money market funds. (Typically, the percentage you want to have in stocks is about 100 minus your age, with the rest split between bonds and cash.) But if you haven't gone back and checked on that allocation for several years, those proportions are probably out of whack. That's why, at the beginning of each year, investment advisors recommend going through an exercise called rebalancing. How does it work?
Take out pencil and paper (or use a personal finance program) and run the numbers.
To realign a portfolio that's overweight in stocks, you can either sell some (start with your losers) or make your next investments in bonds and cash until you catch up.
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