"You don't want to do something like put all [of your retirement money] in a tech fund just because technology is your passion," Valega said. "You want to have a broad-based selection of equities."
Once you have that broad exposure to the stock market, rebalancing matters. If you intend to expose 50 percent of your stock holdings to large-cap funds, 30 percent in small-cap funds and 20 percent in international funds, make sure you don't veer from that allocation.
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Using the above example, if international funds go hog wild and you don't rebalance your holdings, you could find yourself with, say, 30 percent exposed to international funds and decreased exposure to other stocks and fixed income that you had originally decided on.
Valega put it this way: "For example … you start with 60 percent equities and 40 percent bonds. If equities have a bull run, [they] now represent 80 percent of your portfolio."
By rebalancing, she explained, you harvest the gains and redeploy money into lesser-valued assets.