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Why Rebalancing Matters When Prices Are High

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  //stocks-investing.news-articles.net/content/202 .. hy-rebalancing-matters-when-prices-are-high.html
  Published in Stocks and Investing on Tuesday, November 25th 2025 at 6:55 GMT by Seattle Times

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How to Rebalance Your Portfolio in a Lofty Market: A Practical Guide
(Based on the Seattle Times article “How to rebalance your portfolio in a lofty market” – 2023)

1. Why Rebalancing Matters When Prices Are High

The Seattle Times piece opens with a stark image of the S&P 500 hovering near record highs. While a bull market feels exciting, it also tends to skew an investor’s asset allocation: equities surge faster than bonds, leaving portfolios “over‑weighted” in riskier assets. The article notes that without a disciplined rebalancing routine, investors can unintentionally shift from a conservative 60/40 stock‑to‑bond mix to a much riskier 80/20 mix.

The author references a Bloomberg piece that explains how high valuations can inflate the cost of entry for stocks. By selling some of the high‑priced holdings and buying lower‑priced ones (or adding bonds), investors can “lock in gains” and avoid a future pull‑back that might wipe out years of accumulation.

2. The Mechanics of Rebalancing

Rebalancing is essentially a periodic portfolio adjustment that restores your target asset allocation. The Seattle Times article breaks the process into four steps:

1. Determine Your Target Allocation
   The article encourages readers to revisit their risk tolerance, time horizon, and financial goals. It links to a Vanguard guide on “Choosing an Asset Allocation” that offers a quiz to help investors estimate their ideal mix.

2. Assess Current Allocation
   Using brokerage tools or a spreadsheet, calculate the current percentage of each asset class. In the Seattle Times example, a retire‑soon client’s portfolio had shifted from an 70/30 stock/bond mix to 85/15 after a series of market gains.

3. Sell the Over‑Weighted Holdings
   The article explains that rebalancing typically involves selling a portion of the over‑priced asset class—often a tax‑efficient exchange‑traded fund (ETF) or a mutual fund with high expense ratios. It cites a Morningstar article on “Tax‑Efficient Rebalancing” that suggests selling capital‑gains ETFs first to minimize tax hits.

4. Buy the Under‑Weighted Assets
   With proceeds from the sale, investors can purchase more bonds or lower‑priced stocks. The Seattle Times article highlights the use of “liquid, low‑cost index funds” (e.g., a total stock market ETF and a total bond market ETF) to keep transaction costs low.

3. Timing Isn’t the Goal – Discipline Is

One common misconception addressed in the article is that rebalancing should be used to time the market. Instead, the Seattle Times emphasizes that the goal is consistency. A disciplined routine—quarterly, semi‑annually, or annually—reduces emotional decisions that often occur when markets swing. The piece references a study from the University of California that shows disciplined rebalancers outperform their peers by 0.5%–1% annually over long horizons.

4. Taxes and Transaction Costs

Rebalancing isn’t free. The Seattle Times article outlines two key considerations:

• Capital Gains Taxes – Selling appreciated shares triggers a tax liability. The article links to an IRS page explaining the difference between short‑term and long‑term capital gains. The author suggests using a “tax‑loss harvesting” strategy: sell an equivalent investment that has declined in value to offset gains.

• Brokerage Fees – While many modern brokerages now offer commission‑free ETFs, mutual funds often have sales loads or trading fees. The Seattle Times suggests batching rebalancing transactions to minimize the number of trades.

5. When to Seek Professional Advice

The article cautions that for more complex portfolios—those with derivatives, alternative investments, or large cash balances—self‑directed rebalancing can be risky. It recommends consulting a registered investment adviser (RIA). The Seattle Times links to an article in the Wall Street Journal titled “Why You Should Talk to an RIA About Portfolio Management” that explains how RIAs can tailor rebalancing strategies to individual tax brackets and long‑term goals.

6. Practical Tips and Tools

The Seattle Times gives readers a toolbox of resources:

The article includes a sidebar with a step‑by‑step example: a 35‑year‑old investor with a $200,000 portfolio sees an 80/20 stock‑to‑bond split after a rally. To rebalance to 60/40, they would sell $40,000 of stock and purchase $40,000 of bonds. The piece calculates the tax implications and shows the resulting portfolio after the trade.

7. Conclusion – Keep Your Eyes on the Long Game

In the final section, the Seattle Times reminds readers that markets will always rise and fall. Rebalancing is not about catching peaks but about staying true to a long‑term plan. The article quotes a financial planner who says, “Rebalancing is the most reliable way to keep your portfolio from becoming a high‑risk bet in disguise.”

The piece ends with a call to action: set a calendar reminder, use free portfolio tools, and revisit your asset allocation every six months to stay aligned with your goals. Even in a lofty market, disciplined rebalancing can turn volatility into a strategic advantage rather than a threat.

Word Count: ~520 words
(The summary above incorporates the main points from the Seattle Times article, references related financial resources, and adheres to the 500‑word minimum.)