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Why it's Time to Rebalance the Portfolio

Here is a chart highlighting the dramatic outperformance of Tech stocks YTD. It suggests a rebalance into the long-term target allocations might be timely. Bonds and value-oriented dividend stocks might benefit as the economy slows, creating less upward pressure on interest rates. Ironically, tech stocks are up partly in anticipation of this. So they may hold their own, but the significant gains for tech stocks are likely done for now.

Two other tailwinds for the "Old Economy" stocks are:

  1. 2024 is a presidential election year - stocks tend to climb in these years. Coincidence? If Biden wins - stability and govt spending. If Trump wins - tax cuts and govt spending.

  2. The Biden "Inflations Reduction Act," mostly infrastructure and climate change spending, is about to kick in. Old economy and Infrastructure stocks should get a rise out of this.

Rebalancing at this point is pretty straightforward inside the protection of registered plans like RRSPs and TFSAs (IRAs and 401Ks in the US). Capital gains taxes will need to be considered when rebalancing non-registered accounts.

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