An investment strategy is designed to give focus and cohesion to your investment decisions. Yet this strategy will probably not remain constant over the course of your life. Significant changes such as retirement may require major changes to your portfolio. It is important to consider a couple of factors when shifting assets based on these changes.
Major shifts in allocations should be made over a period of time. If large amounts of money are involved, it is generally best to gradually shift the investments over time. To prevent investing at an inopportune time, make these shifts in equal installments over a period of two years. Consider monthly or quarterly changes. Anything longer than that may be too infrequent.
Consider the tax ramifications before making changes. Selling investments can result in significant tax liabilities. By carefully examining your investment portfolio, you may be able to find ways to accomplish this shift in strategy while minimizing your tax liability. For instance, if you have significant investments in a 401(k) plan, IRA, or other retirement plan, you can make changes in your allocation without incurring tax liabilities.
Look for other ways to accomplish the shift. If you will be adding significant sums of money to your portfolio over the time period of your transition, you may be able to accomplish the shift in allocation without selling any of your current investments. Any withdrawals should be made from the categories you are trying to de-emphasize.
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