For many nonprofessional investors, constructing a well-diversified portfolio is a challenging task. Instruments like mutual funds and exchange-traded funds (ETFs) can help these investors diversify across a particular set of securities and minimize single-stock risk—but investors’ behavioral or cognitive bias or lack of investment literacy can still hinder their efforts to diversify.
As the U.S. economy enters the later stages of its economic expansion, returns are projected to be more modest than in previous late-cycle periods. Tailoring a portfolio to this environment can enhance risk and return characteristics, but it can also expose investors to suboptimal portfolios if scenarios develop differently than expected.
When setting and executing a systematic strategy for rebalancing your portfolio to its target asset allocation, use best practices: Rebalance to manage risk and emotion, set a rebalancing "trigger," and minimize rebalancing costs.