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If this tumultuous market is kicking your ulcer into high gear, it might be time to consider rebalancing your portfolio. But before we dive into some rebalancing tactics, let's first dismiss the usual spiel that clutters up your father's portfolio balancing articles:

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You don't need to constantly tinker with your portfolio.

If the last time you created an asset allocation was a few years ago, that 15% technology weighting might be half your portfolio now, thanks to the tech bull run -- and falling back fast as tech slides.

Subtract your age from 100 and make that number your portfolio's percentage in equities, with the remainder in fixed-income securities like bonds and cash.

That old saw is, well, old. The arcane rule says that if you are 45 years old, you should have 55% of your investments in equities, 45% in fixed income.

One size fits all.

A cookie-cutter approach to a perfect portfolio doesn't exist. "It depends on your age, your goals and how long you have to meet those goals," says Tracy Eichler, investment strategist at


in New York. So while most people should have a combination of, say, growth, value, international and technology stocks, with some fixed income and liquid cash on the side, there is no magic formula.

So if you're looking at your portfolio now and realize that you need to make some changes, read on as we explore the best ways to get your asset allocations back to levels that let you sleep at night.

Your Rebalancing Strategy

So where do you begin?

First look at your entire portfolio, says Bryan Olson, director at

Charles Schwab's Center for Investment Research

. That means everything -- from your brokerage accounts to your IRAs and 401(k)s. By treating each account individually, you may be unknowingly increasing your exposure to certain sectors. For instance, if you hold a technology fund in both your brokerage account and your 401(k), you automatically double your exposure to tech.

Then determine the current percentage of each asset class in your total portfolio. "As a general rule, as long as each asset class is plus or minus 5% of your original allocation percentage, you're OK. Above or below that, consider rebalancing," says Olson. If, say, your technology allocation is at 30% but your desired allocation is 15%, then you should do some shuffling.

With the market hovering at serious lows, now is not the time to be dumping too much of your out-of-balance portfolio. But it just maybe a near-perfect time to sell your losers. And since some of those losers might be in the technology sector -- where you may be overexposed anyway -- these sales may be even timelier. If you have holdings that have been tanking for some time and you believe they have no shot of coming back, then consider selling those shares to generate losses. You can use those losses to offset any gains you may have generated this year. That will ease your tax bill in April 2001. For more on tax-loss selling, check out this

Tax Forum.

"Ideally, you want to create those losses in your taxable accounts," suggests Olson. Remember, if you sell a security at a loss in a tax-deferred account, like your IRA or 401(k), you cannot report that loss on your tax return.

At the same time, you do not pay capital-gains tax on any gains generated from sales in tax-deferred accounts. So if you don't have any losers to sell to help get your portfolio back in balance, consider selling holdings that would trigger big capital gains in your tax-deferred accounts.

You always have the option of adding new money to investments that have fallen below your preferred percentages. Your 401(k) contributions are a great avenue for this, reminds Eichler. Assuming you are contributing regularly, just redirect that new money to your underrepresented allocations.

Same goes for the dividend distributions from your mutual funds or stock holdings. Instead of automatically reinvesting them back into the distributing stock or fund,


suggests you redirect them to investments that are below their target allocation.

The market's recent nosedive also reminds us how important it is to have available liquid cash. "You don't get the chance to buy high-quality stocks at these prices that often," says Eichler. So if you had some accessible cash on the side, you could be buying up your favorites.

Always Review Your Rebalancing

Your rebalancing act does not end here. At a minimum, you must sit down yearly to revisit your portfolio. See a

Dear Dagen from Sept. 12, 2000 for more reasons to rebalance.

So talk to an advisor or use one of the many assets allocators available on the Web to create a reasonable investment strategy that meets your needs and risk tolerance. For tips on some online asset allocators, check out our recent

review of a few of them.

This way, when the market decides to dip again, it won't stress you out a bit because you'll be confident in your portfolio.

Send your questions and comments to, and please include your full name. Investor Forum appears Tuesdays, Thursdays and Saturdays.

TSC Investor Forum aims to provide general investment information. It cannot and does not attempt to provide individual advice. All readers are urged to consult with a professional as needed about their individual circumstances.