Any market movement inevitably changes the risk element of every investor’s holdings. Whether up or down, market changes push the client’s account away from the original allocation.

Eventually, performance may be affected as well. Annual rebalancing may not seem like a significant benefit at first glance, so here are some scenarios for you to consider about why rebalancing matters:

Imagine an investor who chose in 1989 to place 75 percent of their account into equities and the balance into less risky fixed income products.

Over the bull market of the 1990s, the equity stake would have grown much faster than the fixed income investments, so that 10 years later, with no rebalancing, the portfolio would have contained 85 percent equities and 15 percent fixed income, a potentially riskier mix. The bear market of 2000-2001 would have cost this investor a heavier hit than the investor who rebalanced yearly.

The investor who is less risk-averse may not be impressed with the above argument, but it is important to understand how rebalancing is designed to keep investments in line with objectives.

The aggressive investor who wants 80 percent equities in small company stocks and the rest in large will see that a market favoring large-cap stocks pushes the portfolio away from a more aggressive goal. Without rebalancing, the portfolio is less ambitious and loses the potential the investor wants.

While rebalancing can result in taxable events and does not ensure a profit or guarantee against a loss, rebalancing may have a beneficial impact on performance because it forces investors to sell securities that have grown in value and buy what is currently out of favor. This seems counter-intuitive to many investors, but over the long run, we believe it is how portfolios grow.

Annual rebalancing is intended to be a painless way for investors to rebalance. It’s unemotional and automatic, and it returns your portfolio to the asset mix that is comfortable for you.

Stephen P. Poitevint is a registered principal and financial adviser with the firm of Raymond James Financial Services Inc., member NASD/SIPC, and is located at 908 Tallahassee Highway, Bainbridge, Ga., and can be contacted at (229) 246-7208 or www.poitevint.com.