The nine-year bull market has helped fatten most investment portfolios, which is a welcome relief for many investors who have lingering memories of the Great Recession. However, the bull market may have also created a rebalancing “problem” that some investors are reluctant to fix because they don’t want to miss out on returns. Of course, high returns are not a bad thing by any stretch of the imagination, but they do create a challenge nonetheless.

Why?

Because of a little thing called rebalancing.

What is Rebalancing?

If you’re unfamiliar with the term, rebalancing essentially means keeping your investment portfolio in line with your long-term strategy. If you have a diversified investment strategy, then you most likely selected a mix of assets that matched your long-term goals. To maintain that same ratio of stocks, bonds and other assets, you need to periodically rebalance your portfolio by redistributing your funds so the original proportion remains consistent.

Here’s a simple example: Let’s say you allocated your investments to a simple 70-30 mix with 70% stocks and 30% bonds. Over time, this 70-30 split becomes unbalanced due to the differing performances of stocks and bonds. This shift alters the risk level in your portfolio and, to keep your risk aligned with your financial plan, must be readjusted on a regular basis—usually annually.

During the prolonged bull market, stocks have far outperformed bonds, so a portfolio that has not been regularly rebalanced is likely strongly skewed toward stocks—and may be more risky than the investor may have intended.

Why Should You Rebalance Away From Strong Returns?

Given the long-term strength of the stock market, you might think that if stocks are doing well, you should let them ride. Why not stick with winners, right? That’s where the resolve comes in. It can be very difficult to consider selling high-flying stocks to invest in limp-along bonds, for example. In fact, some investors choose to stick with high-producing investments despite the imbalance issues this causes.