Rethinking the Rebalancing Act

Just like the tires on a car, the mutual funds in your portfolio must be rebalanced regularly to keep your financial goals aligned. And many advisers will insist that the beginning of the year is the time to rebalance. But is it?

"Why run up fees and taxes just because the Earth has gone around the sun?" says Michael Willis, president and fund manager of Colorado Springs, Colo.-based Giant 5 Funds. "We don't think it's relevant to do solar or lunar rebalancing. We like what we call 'relevant asset allocation,' where the trigger is performance-related."

Because some of your mutual funds will perform better than others, your investment allotment will likely skew from your original goals over time. Rebalancing is the process of selling off and buying investments in your portfolio in order to get back to your original allocation and to reduce your risk. ...