Don't Risk Overexposure to These 2 Stock Sectors in 2021

Investors need to rebalance periodically, and this is especially true following periods with high volatility. In 2020, the S&P 500 climbed more than 18%, but some subsectors did a lot better than others. Technology stocks and some cyclical industries pulled the S&P upwards, while distressed sectors such as energy, real estate, and financials all finished the year at a loss. As a result, many people are at risk of having too much of their stock portfolio invested in certain sectors, and it's important to take action to manage this.

It's not a great idea for investors to try to time markets by selling completely out of some industries and loading up on others. Remember, timing the market requires both an entry and exit point, so it actually means you would have to nail that timing twice for one investment to pay off. That's nearly impossible to do successfully over and over again, even for the best professionals.

That said, it's sensible to lock in some gains from your best-performing stocks by selling a portion of the holdings and reinvesting those gains elsewhere for balanced growth in the future. This is called rebalancing, and it's an important aspect of portfolio management. After last year, investors who aren't using index funds that rebalance automatically should consider adjusting their exposure to the two fastest-growing subsectors from 2020.

Source Fool.com