More Straight Talk on Investing

15Routine Maintenance for Your Portfolio

If you own a car, you understand the importance of maintaining it properly—or you should. A car that's well maintained will run more smoothly, get better mileage, and be less likely to break down. To keep a car in good working order, you take it to the shop periodically for routine service, and, when necessary, a tune-up.

Your investment portfolio will also benefit from periodic checkups and maintenance. And the good news is that with your portfolio—unlike your engine—you should be familiar with what's under the hood.

There are two reasons to make adjustments in your portfolio:

1. Your personal financial situation changes.
2. Market fluctuations alter—sometimes substantially—the mix of your assets.

The focus of this chapter is rebalancing and portfolio maintenance, and I'll also discuss how to go about making changes when appropriate.

Your Personal Situation

No successful investor I know puts everything on autopilot. Why? Personal financial situations change. Your income will drop if you lose a job or retire. Your wealth could increase if you inherit money or sell a business. Other life events, such as marriage, the death of a spouse, or a child's departure from home, can cause fundamental changes in your financial situation. Whenever you experience such a change, it's a good idea to reassess your financial affairs, including your insurance coverage, your will, and your investment portfolio.

You may need to adjust your portfolio's risk ...