It’s time. Haloween decorations are going up, football season is in full swing, and your portfolio is due for a routine inspection.
Use this quick-and-dirty checklist to make end-of-quarter rebalancing easy.
It’s important to know if your portfolio’s allocations are still in line with your original targets.
Step 1: Check your asset allocation.
Because your portfolio’s mix of stocks, bonds, and cash will determine how it performs as a whole, it’s wise to start the review process by checking your asset allocation relative to your targets. One way to do this quickly is by using Morningstar’s Portfolio Manager or Instant X-Ray.
If you tend to be hands-off with your portfolio, it’s a good bet that you’ve drifted away from bonds and toward equities this year. Most diversified stock funds have gained about 14% or 15% over the past five years, whereas most bond funds have returned about half that much.
Don’t feel obligated to rebalance if your current weightings are just a few percentage points away from your target, but if you’re off target by five or 10 percentage points or more, it’s time to make a move.
Stocks are excessively overvalued. But they have performed very well over the past five years. So it’s time to lock in some of your gains so they won’t slip away when the next market correction arrives.
Step 2: Check your equity allocations.
Given the strong performance of stocks recently, it’s worth drilling down to make sure that your equity mix isn’t tilting toward a handful of sectors or industry groups.
When it comes to sector positioning, stocks in the technology sector look the most expensive right now. So if you need to reduce your equity exposure, start by looking at your tech stocks or tech-heavy growth funds.
On the other end of the valuation scale, stocks in the healthcare and energy sectors appear the most attractively valued. You can bring your equity exposure into balance by selling off some tech holdings and reinvesting in underpriced sectors like energy and healthcare.
Step 3: Check your bond allocation.
Bonds’ relatively strong performance so far in 2025 has been a little surprising. The prospect of higher interest rates is a worry for bond investors, certainly. But an even bigger risk for many bond investors today may be that their bond allocations are heavily tilted toward lower-quality bonds, which have done so well that they now look expensive and vulnerable to a rise in rates. My suggestion is to reduce any exposure you have to high yield bonds, and reposition that money into municipal bonds, or municipal bond funds, or municipal ETFs.
That’s all there is to it. Pretty easy when you know where to find the right tools. If you stick to a quarterly or annual rebalancing routine like this, and don’t tinker too much between the rebalancing dates, your chances of winning go way up.