A major part of setting up your 401(k) or IRA account is selecting a portfolio that meets your goals, age, risk tolerance, and time horizon. Each portfolio – whether professionally managed or custom – has a designated mix of assets based on those preferences. However, as the investments rise and fall with the market, the balance of those assets might shift over time.
For instance, if you selected Guideline’s Moderate portfolio, you would start off with a mix of 65% stocks and 35% bonds. During the year, if stocks showed strong performance, you might end up with your portfolio shifting to 75% stocks and 25% bonds.
Portfolio rebalancing helps account for this shift and keep your assets aligned with your target allocation and goals.
How rebalancing works
Portfolio rebalancing is the process of selling shares of a particular holding that has done well, and using those funds to buy shares of a holding that has had less success to help maintain the weighting of the assets in an effort to keep them in line with your chosen target investment allocation.
How Guideline handles account rebalancing
When your Guideline portfolio assets no longer align with your selected preferences (whether you’ve chosen a managed or custom portfolio), your allocations will automatically be rebalanced.
When rebalancing occurs, you will see a notification within your Transaction History that states, “Account rebalancing: Funds reallocated to match your investment preferences.” Please note, the auto-rebalancing feature cannot be disabled.
If you are actively contributing, new contributions may be used to purchase a larger amount of holdings that are under-allocated in your portfolio due to differing returns from the various investments in your portfolio and shares will be exchanged to help maintain your desired portfolio.
Additional information regarding how Guideline handles portfolio rebalancing can be found in our Terms of Service, made available to you in your Guideline dashboard.
This information is general in nature and is for informational purposes only. It should not be construed as investment advice. Investing involves risk and investments may lose value. Consult a qualified financial adviser.