You can rebalance your portfolio in different ways. All these approaches work, but you may feel more comfortable with one than another.
1.
One way to rebalance is to sell off a portion of the asset class that has increased most in value and reinvest those profits in the lagging asset class.
2.
Or, you can change the
way your future contributions are
allocated,
putting more
money into the lagging asset class until things are back in
balance.
3.
You can also add new investments to your portfolio in the lagging asset class and funnel your contributions to those investments.
While all three methods work, many investors are uncomfortable with the first approach since it seems illogical to sell investments that are doing well to buy those that are not. Remember, though, that no asset class is the strongest performer year in and year out. It may be smarter to sell at a high price than to watch the value of an investment drop.
