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A bear market can sometimes throw your finely tuned asset-allocation mix out of whack. As stocks lag, your bond portfolio may start to outperform. Next thing you know, your “ideal” 70%/30% asset mix might be drifting toward a 60%/40% or even a 50%/50% split, and your actual mix no longer matches your risk profile.

You should consider adopting a portfolio rebalancing strategy—even during down markets when it’s tempting to let your “winners” keep growing while your “losers” are taking their lumps. That’s because rebalancing helps you buy low and sell high—an investing adage that’s easy to say and hard to do.

The chart below illustrates hypothetical outcomes for buying and holding vs. having two alternative rebalancing strategies.

Bottom line: Rebalancing can be a helpful investment discipline, whether you do it annually or use a rules-based system to rebalance only when stocks decline by a certain amount.

 

Doing the Math: Buy and Hold vs. Having a Deliberate Rebalancing Strategy

 
  Buy and Hold (No Rebalancing) Rebalance Annually Portfolio Rebalanced to 70%/30%
Only After 20% Drop*
Date Stocks
%
Bonds
%
Investement
Value
Stocks
%
Bonds
%
Investement
Value
Stocks
%
Bonds
%
Investement
Value
1/1/1998 70 30 $100,000 70 30 $100,000 70 30 $100,000
12/31/1998 73 27 $122,611 73 27 $122,611 73 27 $122,611
12/31/1999 77 23 $141,282 74 26 $140,368 77 23 $141,282
12/29/2000 73 27 $135,123 66 34 $136,318 73 27 $135,123
12/31/2001 69 31 $126,401 65 35 $128,430 68 32 $126,450
12/31/2002 61 39 $111,131 62 38 $112,512 68 32 $110,675
12/31/2003 66 34 $132,400 74 26 $136,489 73 27 $133,752
12/31/2004 67 33 $143,868 71 29 $148,663 74 26 $145,904
12/30/2005 68 32 $149,770 71 29 $154,857 74 26 $152,119
12/29/2006 70 30 $167,922 72 28 $173,992 76 24 $171,648
12/31/2007 70 30 $177,885 70 30 $184,319 76 24 $181,681
12/31/2008 58 42 $134,707 58 42 $139,481 62 38 $134,219
12/31/2009 62 38 $158,776 74 26 $167,802 77 23 $166,146
12/31/2010 64 36 $177,602 72 28 $188,788 78 22 $187,927
12/30/2011 63 37 $185,000 69 31 $196,020 77 23 $194,221
12/31/2012 65 35 $206,514 72 28 $220,458 79 21 $220,144
12/31/2013 72 28 $248,783 76 24 $269,101 84 16 $275,749
12/31/2014 73 27 $277,424 71 29 $299,702 85 15 $310,044
12/31/2015 73 27 $280,644 70 30 $303,100 85 15 $313,940
12/30/2016 75 25 $307,254 72 28 $330,883 86 14 $347,053
12/29/2017 78 22 $360,313 73 27 $384,964 88 12 $413,881
12/31/2018 77 23 $348,004 69 31 $373,163 87 13 $397,959
12/31/2019 80 20 $439,504 74 26 $465,168 89 11 $511,739
12/31/2020 82 18 $510,967 72 28 $535,553 77 23 $567,441
12/31/2021 85 15 $629,580 75 25 $640,689 82 18 $691,615
12/31/2022 85 15 $520,217 69 31 $534,459 71 29 $570,275

* This hypothetical investor rebalanced the portfolio after 20% equity drops on 3/12/01, 7/10/02, 7/9/08, 2/27/09, 3/12/20, and 6/13/22.

 

 

Talk to your financial professional about the benefits of a portfolio rebalancing strategy.

Past performance does not guarantee future results. Indices are unmanaged and not available for direct investment. Investing involves risk, including the possible loss of principal. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. The chart above is for illustrative purposes only. Market performance data is based on daily changes in the S&P 500 Index and the Bloomberg US Aggregate Bond Index. The S&P 500 Index is a market capitalization-weighted price index composed of 500 widely held common stocks. The Bloomberg US Aggregate Bond Index is composed of securities from the Bloomberg Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, and Commercial Mortgage-Backed Securities Index. Source: Bloomberg Index Services Limited.

“Bloomberg®” and any Bloomberg Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Hartford Funds. Bloomberg is not affiliated with Hartford Funds, and Bloomberg does not approve, endorse, review, or recommend any Hartford Funds product. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Hartford Fund products.

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