In today’s video we’re discussing 401(k) rebalancing and whether or not it can help improve your 401(k) balance when the market is down.

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A question we get often in times like these is, “Can rebalancing right now help my 401(k)?”
And the answer is, “It could.” But, most 401(k) holders haven’t touched their accounts since they were opened.
First let’s define rebalancing…Rebalancing is the process of realigning the weightings of the assets (your investments) in your portfolio to stay in line with your risk tolerance and your timeline for retirement.
This means you periodically buy or sell assets in your portfolio in order to maintain the initial desired level of asset allocation.
Maintaining an even distribution of assets–such as 60% stocks and 40% bonds–is also a key objective.
If your selected stocks performed well over a period of time, the weighting of stocks may have increased to 75% and reduced the weighting of the bonds to 25%.
To return to your initial target 60/40 weighting, you would need to sell some of the stocks and purchase more bonds.
But, during a downturn in the market, it is just the opposite.
For example, let’s say you had 60% stocks, and 40% bond portfolio last year. Now your weighting is now 50% stocks, and 50% bonds due to the downturn. To keep the same original allocations of 60/40, you would sell bonds, and buy more stocks! That’s a good thing as you will be buying what got beat up the most, and what will come back the fastest, stocks (in most cases). This would also help you lower your cost basis on the stocks you already own.

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