Subtle shifts better when rebalancing portfolios

NEW YORK — Investors worried that their portfolios are not only endangered from the sell-off on Wall Street but are also out of balance might need to consider making changes. The bear market has left some investors with too much money concentrated in certain areas of the market and too little in others.

Rebalancing a lopsided portfolio — or ensuring that different asset classes are maintained in an appropriate mix — can require extra care in a volatile market, but is often a smart move, according to financial experts. It also lets investors who are worried that they have been too aggressive make shifts without overreacting and risking worsening their losses.

A properly balanced portfolio can mean a mix of stocks, bonds, cash and perhaps hard assets such as gold. Trimming one area that grows too quickly can help investors avoid staying in overheated corners of the market and snap up bargains in other areas. The idea is to strike a balance of assets that aren't overly correlated to one another, meaning that when one asset class goes down, another tends to go up.

"It's never too late to try to improve the balance within your portfolio," said J. Bryant Evans, a portfolio manager and investment adviser at Cozad Asset Management in Champaign, Ill. Evans doesn't call for a broad rearrangement, but said investors might consider increasing their exposure to defensive areas such as dividend-paying stocks. He also said they might consider adding to their range of fixed-income investments, such as municipal bonds. He warned, however, that with demand for safe-haven investments such as Treasury bills already high, a rush to defensive corners of the market can mean investors might be putting money into an area poised for a pullback.

"Right now might be the exact wrong time to move everything into the money markets," he said, referring to one move worried investors might want to make. Generally, investors should consider a "subtle shift," he said, and make changes slowly to avoid entering a market just before it takes a hit.

He contends investors looking to ensure they hold a range of investments in the fixed-income space should not only consider the safest holdings such as government bonds and CDs but also perhaps some small exposure to other parts of the market, even areas that have been beaten down, such as corporate debt. Evans also said investors should seek some of the same balance in their stock investments, though consider hewing to more defensive areas such as stocks with reliable dividend records, such as utilities.

Brian Kazanchy, chairman of the investment committee at Regent Atlantic Capital in Morristown, N.J., said the fear created by the market's decline in the past year has made it hard for some investors to consider selling stronger parts of their portfolio.

But he said investors who regularly and judiciously trim parts of their portfolio that have had strong runs can be ready to capture the next winners. He pointed to the decline among stocks and what rebalancing could mean: "If you're rebalancing along the way, you're likely buying stocks at prices that will prove to be very cheap."

He said investors should consider what reward a move into some parts of the market might bring and then determine, for example, whether a move into riskier parts of the bond market are worth it.