Asset allocation isn t a one-time decision it s an ongoing, evolutionary process that changes as your needs change. Because of this, there are some additional factors that you should consider when making asset allocation decisions. For instance, there will be times when your financial situation will change because of major events in your life, such as marriage, buying a house, or paying college tuition. During these times, you may want to reevaluate your level of risk and make sure it continues to match your goals. Consider the concept of re-balancing.
Different investments appreciate at different rates.
Therefore, over time asset classes with a higher rate of growth will make up a larger percentage of the total mix. Rebalancing transfers money out of more aggressive funds and places them in more conservative funds, thus allowing you to maintain the original asset allocation mix. It s generally a good idea to consider evaluating your portfolio once a year to see if it s time to rebalance. The stock market has recently experienced several years of double-digit performance and many people are forgetting that there is always potential for risk. Risk is the chance of realizing low returns or perhaps even a loss.