How to Balance Investment Portfolios

An investment portfolio may need to be changed over time to remain well-balanced.

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An investment portfolio consists of all of your investments in different products and sectors of the economy. A typical investment portfolio may include stocks, bonds, retirement savings accounts and other investments, such as mutual funds or certificates of deposit. Whatever they include, investment portfolios should be balanced to provide the maximum benefits without taking on unreasonable risk.


Balancing an investment portfolio begins with diversifying, or splitting up the total value of investments among different types of investment products. This distributes risk across multiple investments, which change value independently of one another. It also gives you the chance to earn more when a single investment gains value. If you start with a single, large investment, diversifying means selling off a portion of it to buy different investments. If you start with cash, diversifying means purchasing multiple investment products at the same time to begin with a balanced portfolio.

Consider Risk

You must consider risk whenever you balance an investment portfolio. The way you diversify depends on your level of risk tolerance. For example, if you have large cash reserves, you may be able to tolerate a larger loss, both in terms of percentage and dollar value, than an investor whose net worth is largely invested in products that can lose value rapidly. Risky investments such as stock should be balanced with secure investments, such as certificates of deposit and government bonds.

Account for Your Time Horizon

Time horizon plays an important role in balancing an investment portfolio. Your time horizon refers to how soon you need access to the money you invest and growth on that investment. If you need to access your investment money soon, as in the case of an investment intended to fund your retirement that you buy when you're in your 40s, the investment should be liquid, or able to be turned into cash, and not very volatile, or subject to the risk of changing value. On the other hand, if you have a longer time horizon, you can consider investments that are less liquid, such as certificates of deposit that are intended to remain untouched for many years, or more volatile, since you'll have more time to let them recover from short-term losses before you need to sell.

Tools to Use

If you have a working knowledge of the investment products you plan to pursue and a willingness to do your own research, you may be able to balance your investment portfolio using little more than your account statements and a computer with spreadsheet software and Internet access. However, if your investments are more complex, you may need to work with a financial professional. Most banks offer investment services and financial planning. Likewise, a lawyer, investment professional or tax professional you already know or work with may be able to offer advice or recommend resources to help you balance your investment portfolio.