Should You Rebalance Your Portfolio?

On 2011/07/11, in Blog, by Miranda Marquit

One of the questions that many have about their dividend portfolios is this: “Should I rebalance?” The answer, of course, depends on your investing and dividend goals. If you have a long-term investing plan for your dividend portfolio, hoping for growth in the stocks you hold as well as benefitting from the dividends, rebalancing becomes quite important.



What’s Your Target Allocation?

The first thing to do is remind yourself of your target allocation for this portfolio. In some cases, your investment plan might call for a shifting target allocation, depending on where you are at in life. Consider your current position, and think about what your dividend portfolio should like right now. Then, review your dividend portfolio. You might be surprised at how recent additions might have skewed your portfolio. Additionally, if you have dividend funds, you might find that changes to the funds themselves might have changed your asset allocation. If your asset allocation doesn’t reflect your current position and plans, you need to rebalance.

Are You Unhappy with Your Level of Diversity?

Next, you need to look at the level of diversity in your dividend portfolio. Are you unhappy with it? Consider your goals, and consider the latest industry news. You might be unhappy with your current level of diversity, and interested in changing matters. Review your dividend investments, and make sure you aren’t relying too heavily on one industry, or one asset class. You could find yourself in trouble if that one area runs into problems and everyone starts cutting dividends – or if everyone tanks close to your target retirement date. Dividends aren’t much use if you were planning to sell the stocks and do something else with earnings. If you don’t have your desired level of diversity, rebalance your portfolio until you do.

Individual Stocks

You should also consider your feelings about the company itself. Do a little fundamental analysis. Has something changed about the company at the most basic level? If you are unhappy with some of the companies in your portfolio due to management changes, profit margin shrinkage, or loss of market share, it might be time to pull out and look for another option. It’s also a good idea to be wary of dividend stocks that have experienced a lot of cuts to pay outs recently. This is especially important if you rely on your dividend portfolio for a revenue stream. If too many cuts are affecting your income, it might be time to rebalance your dividend portfolio so that your income is restored.

Bottom Line

Take time at least twice a year (or as much as every quarter) to consider your dividend portfolio. Make changes as necessary so that your portfolio continues to reflect your current needs and future goals.


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