Is Now The Perfect Time To Rebalance Your Portfolio?

4 Reasons Why Now May Be The Perfect Time To Rebalance

I’m not talking about market timing (“stocks look expensive, I should sell!”). I’m talking about a systematic process that reacts automatically to volatility. Rebalance when your allocation exceeds the limits you set in advance, no forecast required.

I’ve practiced what I’m preaching. As I wrote in The 60/40 Portfolio vs. The Bucket Strategy, my stock allocation hit 72% at the end of 2025 (a “Rising Equity Glidepath” effect), and it peaked at 75% before I started rebalancing. My buckets were protected, but I was getting uncomfortable. So I’ve been selling stocks and building up my bond ladder. My stock allocation is now 65%, and the ladder covers 75%+ of our spending through 2036.

Here are four reasons I think the timing is right.

1. Your Allocation Has Probably Drifted

If you haven’t rebalanced in two years, your allocation is likely off target. Stocks surged, and bonds fell as rates rose. It’s simple math, and the shift is probably larger than you think. Better to find out now than when the next bear market arrives (it will, just don’t ask me when).

As Michael Kitces explains, the key is having a rebalancing system. This chart from his article is worth reposting:

This post is for those of you who let it slide a bit longer than you should have. Check your allocation while you still have time.

2. Stock Valuations Suggest Lower Returns Ahead

I’m a big believer in mean reversion. After a decade of well-above-average returns, I suspect the next decade will be less generous. Rebalancing means selling winners and buying laggards, and if you haven’t sold any stocks in years, it’s time to revisit your risk.

David Stein’s October 21st Money for the Rest of Us 10/21/26 email on valuations included two charts worth a look:

I’m not smart enough to predict the future, but the bottom chart gave me pause. At today’s CAPE valuations, history suggests a decade of roughly 0% real stock returns is possible. After 15 years of strong gains, sequence-of-returns risk has likely increased, too.

Compare the outlook of stocks to current bond yields, where you can now lock in an essentially guaranteed return with little to no risk… which I’ll address next.

3. Bond Yields Are Attractive

In How I Think About Investing in Bonds, Ben Carlson notes that yields haven’t been this high since 2007, and he’s now warming to bonds. As he puts it:

“Owning bonds is simply a way to diversify some of that risk after one of the best 15-year runs in stock market history.”  Ben Carlson

His chart makes the key point: the yield you buy at largely determines your return. Ten-year Treasuries now yield 5%+, which bodes well for the next ten years.

Bonds can still fall if rates keep rising. My solution is a bond ladder. I began building one in 2023 (see How to Build a Bond Ladder). Each rung matures into cash in December, and holding to maturity largely eliminates interest rate risk, something you don’t get from a bond fund. For inflation protection, I use TIPS ETF’s for my rungs (see this 2036 TIPS ETF as an example, which I recently added to my ladder). 

Originally, each rung covered 50% of the following year’s spending. Over the past few months, I’ve expanded the ladder to cover 75%+ of spending for the next ten years. That significantly reduces sequence-of-returns risk, because stocks have time to recover after a downturn. And because rates have risen, I bought at lower prices and higher yields than at any point since I retired in 2018.

Selling stocks when they’re up, and buying bonds when they’re down. Isn’t that what rebalancing is all about?

Carlson shared a relevant chart in this article (which I found after writing this draft, though he makes the same argument).

With bonds yielding ~5%, a 60/40 portfolio needs only ~8% from stocks to earn ~7% overall. For the past decade, stocks had to do all the heavy lifting because bond yields were so low. I suspect bonds will get their turn in the spotlight.

Diversification for the win, empowered by rebalancing.

PS – I’m not a huge fan of annuities, but if you’ve been considering one, higher yields make them more attractive. If so, stick to a simple Single Premium Immediate Annuity (SPIA) or Deferred Income Annuity (DIA). 

4. Your Portfolio Has a Job

The primary purpose of your portfolio is to fund your retirement spending.

Nobody wants to be overexposed to stocks heading into a bear market and then be forced to cut spending. Yet if you haven’t rebalanced lately, you’re probably holding more stock than you’d choose, at a time when valuations are high, and bonds are paying their best yields in years.

When you’ve won the game, it’s worth asking whether you still need to keep playing at the same risk level. Locking in a ten-year ladder at the highest starting yields since 2007, with TIPS to address inflation, is a golden opportunity to rebalance and protect your spending.

Conclusion
We all know we should rebalance, but it’s easy to let it slide. Given today’s market, now is a good time to look at your holdings. If your allocation is outside your comfort zone, conditions are ripe to rebalance. And holding bonds to maturity at today’s yields offers a competitive return that can fund your spending while reducing your risk.

Big ERN recently analyzed TIPS Ladders and gave them his seal of approval (“ERN-approved retirement safety enhancement”), noting that a TIPS ladder can support a 5+% safe withdrawal rate over 30 years in today’s environment.

For me, the result has been peace of mind. With ten years of spending covered, I won’t lose sleep if stocks fall 20% or more. I’ll just spend the rungs as they mature. It’s the most secure position I’ve had since retiring in 2018.

Now I can stop worrying about the next correction and enjoy life.

Isn’t that what retirement is all about?

Your Turn: How do you approach rebalancing, and when did you last do it? Do you see higher bond yields as an opportunity? Let’s chat in the comments (no “market timing” comments, wink).

Appendix – For You Money Nerds…

This post reflects my personal situation and isn’t individualized investment advice.

The post Is Now The Perfect Time To Rebalance Your Portfolio? appeared first on The Retirement Manifesto.

Fritz Gilbert writes at The Retirement Manifesto. Read this article on their site.