There’s no one “right way” to rebalance, but there are some proven strategies that can help you strengthen your portfolio for the new year. Here’s a look at some of these approaches.
Diversification is key
Seasoned investors often emphasize diversification. It is a key concept that boils down to risk mitigation. If you put all your money into a single investment and it fails, you will be left with a fraction of your initial investment.
Instead, diversification across different market segments, or even different geographies, can help mitigate that risk.
A good example of diversification is Bank of Nova Scotia (TSX:BNS). Scotiabank is one of Canada’s largest banking stocks. The bank is known for generating a reliable and recurring income stream and paying a healthy, growing dividend.
But more importantly, the bank has a diversified growth stream, with operations not only in Canada, but in multiple markets around the world. Scotiabank has even been nicknamed “Canada’s most international bank.”
The stable domestic market generates a stable income stream that leaves room for investments in growth and the bank’s robust quarterly dividend.
In contrast, the international segment has shifted its growth focus from the developing Latin American markets to the more mature markets in North America.
The result is a great investment that has paid off for more than a century and continues to have strong long-term growth appeal.
For investors who haven’t yet invested in a major bank and are looking to rebalance before 2026, Scotiabank is hard to ignore.
Sprinkle some dividends (and defense) into your portfolio
Defensive stocks are stocks that provide a product or service with consistent demand and are largely immune to market fluctuations. Good examples of this include grocers, utilities and energy stocks.
That reliable, stable income stream also means that defensive stocks often offer the best dividends on the market.
If you’re looking at defensive stocks to rebalance your portfolio, you might want to consider this Fortis (TSX:FTS). Fortis is a utility company with a huge portfolio that includes operations in Canada, the US and the Caribbean.
The company generates a recurring income stream from long-term contracts, which allows it to pay a nice dividend. Fortis has paid out that dividend flawlessly and has provided annual increases for 51 consecutive years.
At the time of writing, the yield on that quarterly dividend is an attractive 3.58%.
That’s a defensive, diversified choice that every portfolio needs.
Leave the old, buy the new
If you want to rebalance your portfolio, this is one of the more difficult lessons. No investor willingly enters into a trade thinking a stock will fall. But if it does happen, an even more pressing question arises. Should I hold or sell and move on to other opportunities?
That’s the question facing investors B.C (TSX:BCE). The stock is down more than 40% in the past five years. The one-time dividend darling has also cut its dividend in an effort to reduce costs.
That dividend cut made the payout more sustainable. BCE also invested in new areas and markets while paying off some of its debt. The stock has even shown signs of recovery over the past six months.
But the question remains: “Is there a better potential return to be achieved elsewhere?”
Sometimes that answer is yes. Selling can free up money for stronger opportunities and even provide tax-loss harvesting benefits.
Are you ready to rebalance your portfolio?
No share is without risk. That includes defensive gems with otherwise stable, reliable business models spanning decades.
That’s why diversification, choosing the right stocks for growth or income, and knowing when to sell are important parts of rebalancing your portfolio.
A thoughtful rebalance today can set the stage for stronger returns, smoother performance and a more resilient portfolio in the year ahead.
It’s time to rebalance your portfolio.
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