NextGen Investing: Finding the proper asset balance

Even in this new digital age of cryptocurrency and non-fungible tokens (NFTs), an old-fashioned buy-and-hold stock and bond strategy has been a winning formula. In the 20 years through 2020, $10,000 invested in the S&P 500 stock index grew to more than $42,000.

But as profitable as it has been to take a patient, long-term perspective that doesn’t try to time market swings, buy-and-hold investors might need to make changes in their portfolio.

Is your current mix of stocks and bonds out of whack? The allocation should change with your age. Many investment advisers say subtract your age from 100, so a 30-year-old’s mix should be 70% stocks, 30% bonds.

If your money is invested in a workplace retirement fund or an individual retirement account, you can easily move money out of your stock funds and into bonds. Exchanging shares within a retirement account does not trigger any tax bill.

But if your investments are in a regular taxable account, moving money from one fund to another is considered a sale, even if you immediately reinvest the money in another fund. Gains on that sale are subject to tax.

If you have both retirement and taxable accounts, there’s no need to have each individual portfolio hit your target allocation. All that matters is your overall mix for your retirement planning. If you still have the stock investments in your taxable account, you could leave that untouched, and do your rebalancing inside your 401(k) or IRA, where there’s no tax cost to move money from one fund to another.