Allocating the assets in your portfolio is not a one-time undertaking.

Using a strategy known as asset allocation, you select a mix of investments for your portfolio calculated to achieve your financial objectives at a level of risk you can tolerate. The allocation you choose has a major impact on whether or not youll be able to meet your financial goals within the timeframe you set.

But asset allocation isnt something you do just once. Knowing when and how to reallocate which involves changing the way your portfolio is spread across the major asset classes is equally essential. Unfortunately, its a practice thats all too frequently ignored.

FIRST, THE REBALANCING ACT

Dont confuse reallocating with rebalancing, which is also important but potentially less radical. In years when an asset class is performing exceptionally well or has lost a lot of ground for example, if stocks experience a strong upturn or downturn the percentage of your portfolio allocated to that class will change, and the balance youve aimed for will be out of kilter.

Your financial adviser may suggest you review and rebalance your portfolio once a year. Or you may prefer to make a change when an asset class is 15% out of line with the allocation youve chosen.

There are times, however, when rebalancing isnt enough. For example, when your financial circumstances change, you should be proactive about making more significant adjustments to your portfolio.

AS YOU APPROACH YOUR GOALS

As you come close to achieving your goals for instance, sending your child to college, buying your first home, or retiring youll probably want to move a gradually larger percentage of your money into investments that are easily accessible and arent as vulnerable to loss as equities can be. Your new allocation might increase the percentage of income-producing investments and those designed to preserve capital, such as money market funds, certificates of deposit (CDs), and US Treasury bills and notes.

By easing out of riskier investments and into more stable ones, you can help protect the assets youve accumulated against the risk of a major downturn in a market or market sector right before you need to access the money. But most financial advisers emphasize that its important to own investments with growth potential your whole life.

It may also pay to reallocate more than one time as you approach your goals, especially those that are long term, such as retirement. For example, you may want to begin shifting out of higher-risk investments ten years before you reach your goal and then make additional changes five years before.

Of course, theres no one right way to allocate (or reallocate) your portfolio. The investments you select will depend on a variety of factors, including your risk tolerance, objectives, and financial situation, among others.

WHEN YOUR LIFE CHANGES

Major changes in your life, such as getting married or changing careers, are also important times to revisit your portfolio allocation. Here are two examples that illustrate why.

When you get married:

Typically, its easier for a married couple to follow some of the basic principles of investing, including asset allocation and diversification. If you have two incomes, youll have more assets at your disposal. This means you can increase your investments and work together to diversify your overall holdings. Or, perhaps youll choose to buy a diverse mix of investments for each of your separate retirement and regular investment accounts.

If you and your spouse keep separate investment accounts, its still important that you review all of your investment decisions together on a regular basis. Doing so can help ensure that the investments each of you chooses will help you reach not only your own financial goals, but those you share as well. This strategy can also help you avoid inadvertently reducing your portfolio diversification for example, by investing in many of the same individual investments or market sectors and therefore exposing you to either too much risk or not enough growth potential.

When you change careers:

If you change careers, your finances may be affected in a number of ways. Your salary may increase or decrease, your cost of living may be different, especially if you move, your health care coverage and costs may change, and youll need to decide what to do with your old and new retirement plans.

How these changes affect your investment portfolio will depend on the choices you make. If you have more disposable income than you did before, you may increase the amount you invest for a particular goal, or invest in some new asset class. And the way you invest your retirement assets will depend, in part, on whether you decide to roll over your old account into your new employers plan, open an IRA, or keep the assets in your old plan, if that options available to you. You may want to speak to a financial professional about the best choices for you.

As you reach some of your goals and create new ones, youre bound to experience times when youll need to reevaluate how youve invested your money. Taking the time to do so, either on your own, with your family, or with the help of a financial adviser, can mean the difference between staying on the right track, having the funds to pay for the things you need and want, or having your plans derailed.