Investing Spotlight

The Importance of Rebalancing

Having a systematic plan for periodically adjusting your asset allocation is an integral element of the portfolio review, and now may be a good time of year to review your portfolio and make sure you’re still on track. When you receive your year-end financial statements, you can see how your investments have performed over the past year and assess whether your asset allocation is still in line with your risk tolerance and goals. You may need to rebalance your portfolio—selling some investments that have increased in value beyond your target allocation and redeploying the cash to investments that are performing below your target—or your portfolio could become more or less risky than you originally intended.

It's easy to see the importance of rebalancing over the past 18 months. Some types of investments that performed the worst from September 30, 2008, to March 9, 2009, ended up performing the best from March 9 to September 30, 2009. During that first six-month span, for example, the S&P 500 lost 41 percent while stocks in the financial sector lost 68 percent, and stocks in the industrial sector lost 51 percent. However, from March 9 to September 30, 2009, the S&P 500 gained 58 percent and stocks in the financial sector gained 142 percent and stocks in the industrial sector gained 77 percent. Of course, before rebalancing, you should ensure that your target allocation still makes sense, based on your ability to weather a potential subsequent stock downturn. If you had rebalanced and added more to stocks after the downturn—to get you back in line with your original asset allocation—then you could have benefitted more from the rebound. Naturally, past performance does not guarantee future results.

Then review your investments on a regular basis and rebalance your portfolio to maintain the allocation you selected—based on your investing time frame and risk tolerance. Having a regular schedule for rebalancing—whether it’s once a quarter or once a year—can help take the emotion out of the task, because psychologically it can be difficult to buy when a certain type of investment is down and sell when it is up.

If you'd like a straightforward, diversified investment option, the Vantagepoint Milestone and Model Portfolio Funds¹, ², ³ are created based on particular investing time frames or risk profiles and are automatically rebalanced for you. See the "Our Funds" section of www.icmarc.org for more information. Also available at www.icmarc.org is information on Guided Pathways®, a suite of investment management services offered by ICMA-RC, which offers three levels of assistance, including investment selection and automatic rebalancing. Please contact ICMA-RC's Investor Services to see which level of Guided Pathways is available in your plan and may be suitable for you.

¹Please be advised that with "Fund of Funds" arrangements, additional underlying fund fees will apply. Please consult the prospectus for details.

²The share values of the Milestone Funds are not guaranteed at any time, including at or after each Milestone Fund’s target year, which is the year when investors expect to retire and begin making gradual withdrawals. There is no guarantee that a Milestone Fund will provide adequate income at and through an investor’s retirement or that the investor will have adequate savings for retirement. The Milestone Funds’ allocations change over time.

³ Please read both the current applicable prospectus and Making Sound Investment Decisions: A Retirement Investment Guide carefully for a complete summary of all fees, expenses, charges, financial highlights, investment objectives, risks and performance information. Investing in mutual funds and other investment vehicles involves risk, including possible loss of the amount invested. Investors should carefully consider the Fund's investment objectives, risks, charges and expenses before investing or sending money. The prospectus contains this and other information about the investment company. The Vantagepoint Funds are distributed by ICMA-RC Services LLC, a wholly owned broker-dealer subsidiary of ICMA-RC and member FINRA / SIPC . For a current prospectus, contact ICMA-RC Services, LLC.