Rebalancing is a useful process at any point in a market cycle. While the market is rising, gradually adjusting the equity to fixed income or cash allocation can leave a portfolio less exposed to adverse events. There is a practical way to assess individual stocks that can lead to rebalancing while determining the worthiness of each portfolio member.

In doing a review of holdings, on each item ask whether you would buy the stock at that time. If the answer is “no,” at least scrutinize why the position is held and consider whether there is a suitable alternative you would buy or perhaps sell the position and hold onto the cash. This not only is a simple portfolio review method, but it also can help in the rebalancing process.

At this time, after the market has sold off, the same process is useful in reverse. When checking a current position, ask whether it should be sold. If the answer is “no”, especially if it is a quality long-term holding, retention makes sense. If the answer is ‘yes”, at least a closer examination is needed and perhaps an outright elimination.

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