How to Rebalance a Swollen Portfolio
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How to Rebalance a Swollen Portfolio

Smart investment planning calls for you to diversify holdings among different asset classes. This asset allocation will depend on your specific situation. But when the allocations rise above or fall below your targets by a set percentage—say, 20%—you need to rebalance to retain your original risk profile.

How to rebalance

Ideally, you want to invest new cash to rebalance rather than sell investments, and possibly incur tax consequences. But if your new investment dollars won’t bring you up to a desired level, you’ll need to sell shares from overweight positions and use the proceeds to shore up underweight holdings.
Ц Beware of these hot-market scams
When the market rises, the Internet and phone lines heat up with unsolicited stock tips and financial offers. Market scammers prey on people who think their assets haven’t gone up enough or that they’ve missed out. Common ploys:

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PRIVATE OPPORTUNITY.

In this pitch, a salesperson claims to have access to securities normally reserved for top financiers. For example, investors’ money will supposedly be used to buy and trade “prime bank” financial instruments on clandestine overseas markets, generating guaranteed profits of 100 percent or more. No such financial instruments exist, of course, and investors simply kiss their money goodbye.

FRIENDS OF FRIENDS.

Here the con artist may enlist respected leaders to persuade others to invest. When people hear that their friends, acquaintances, or fellow church members have invested, they want to follow along.

GOING FAST

Making an investment opportunity seem rare or in great demand is another technique that fires up targets. Typically, victims are told that if they don’t act immediately, they’ll miss out.

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GOOD TURNS.

Scammers may position themselves as your friend and do small favors to pressure you to reciprocate by investing, such as not taking a sales commission.

WHAT TO DO:

Scammers often start conversations by asking questions about your life to find out what will make you cough up money. Defend yourself by asking rather than answering questions. And, if you’re at all tempted to get involved, make sure you understand how the investment works, and check the background of the person selling it. An even simpler strategy: Just hang up.

Now guess who gets scammed most:

A study by the NASD (National Association of Securities Dealers)— the primary private-sector regulator of America’s securities industry—compared investment-fraud victims to nonvictims and found that victims are more likely to be:

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■ Male.
■ Married.
■ Financially literate college grads with an annual income of $30,000 or more.
■ Self-reliant about making investment decisions.
■ More open to listening to sales pitches, attending free investment seminars, and reading unsolicited mail.
■ Optimistic, contributing to a “wishful thinking” mentality that con artists can exploit.
■ Subject to negative life events, for example, job Joss or illness.