IS FINANCIAL PORTFOLIO IN 'BALANCE'? (FINANCIAL FOCUS)

This "Financial Focus" column is prepared by Edward Jones Investments, headquartered in St. Louis. Jones includes branches throughout the nation, including Cape Girardeau and Jackson.

If you've consistently invested in stocks during this extended bull market, your holdings may have swelled in value. Naturally, you're pleased that you've achieved such strong gains. However, your ballooning portfolio could have some implications you hadn't thought of. Specifically, your holdings may have grown to the point where they no longer accurately reflect your goals and your investment personality.

Here's an example: Suppose you initially determined that, with your particular tolerance for risk and long-term goals, you wanted a portfolio composed of 60 percent stocks, 30 percent bonds and 10 percent cash instruments. Now, several years later, your stocks have gone up so much in price that they make up 70 percent of your portfolio's value.

Are you ready to take on the additional level of investment risk that automatically occurs with increased stock holdings? If you are, then you can choose to leave your portfolio alone. But if you aren't, then you may want to consider "rebalancing" your assets.

You could rebalance your portfolio by selling some stock from the companies that have done well and reinvesting elsewhere, thereby returning your level of stock ownership to the original 60 percent figure. But why not take this opportunity to thoroughly review your financial situation?

You can start by reviewing how your life has changed since you originally established your asset allocation guidelines. Have you switched careers? Do you have a new child? Have you altered your retirement plans? The answers to these and other key questions will help you evaluate your portfolio to determine if your investment mix is still appropriate.

Of equal importance is your tolerance for risk. Although we all have different investment personalities, our risk tolerance can change over time. When you are starting in your career, you may want to put a relatively large percentage of your investment dollars into growth-oriented stocks and mutual funds. At this stage, you have the time to ride out the price fluctuations that will occur in these investments. On the other end of the spectrum, when you are nearing or in retirement, you may want to switch some of your assets into more conservative vehicles, such as growth-and-income funds, Treasury securities and other fixed-income investments. (However, even during retirement you will still need elements of growth in your portfolio to counteract the cumulative effects of inflation, which can rob fixed-rate investments of purchasing power.)

So as you go about rebalancing, look at your current tolerance for risk, as well as any other factors that have changed in your life. Then work with your financial professional to develop a new investment mix -- one that meets your current needs.

Whatever moves you decide to make, you'll find that just going through the rebalancing process is useful. It's always a good idea to see where you're at -- and where you're going.

The Southeast Missourian does not recommend that readers buy or sell stocks featured in this column, which is provided for informational purposes only.