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Are you a buy and hold type of investor, or are you open to a bit of portfolio rebalancing once in a while? A true buy and hold guy (or gal) will hold tight until the cows come home (hopefully they’re cash cows). On occasion, however, if you're like most investors, your portfolio could do with a bit of readjustment. You need to look at your long term investment goals and make sure you’re still on target to meet them.  Rebalancing isn’t so much the process of exchanging individual stocks and/or bonds, but reallocating your investment resources to different asset classes, such as stocks, bonds, cash and real estate to maximize return within your risk tolerance. 

The need for portfolio rebalancing comes about when you’ve had a significant change in some of your assets, hopefully due to dramatic gains in value. Say, for example, that some of your stocks have had an exceptionally good run, or that your real estate holdings have experienced dramatic appreciation. You may want to move things around a bit to lock in your gains and minimize your risk.

You can reallocate within asset classes as well. Look at your equity positions. Are they still apportioned according to your goals and risk tolerance? Maybe the aforementioned gains have caused the small cap part of your portfolio to outstrip the rest of your stocks. In that case, you’d want to shift some of your stocks to other classes, such as large cap or value, depending upon your favored distribution.

Be careful. If part of your portfolio is taxable, you could experience serious tax consequences by rebalancing. Selling assets could cause you to be liable for capital gains taxes, which could erode some or all of your gains. Check with your investment advisor to be sure.