Many investors are confused about how to rebalance their investments. A big secret for planning the rebalancing process is to consider all of your investments as one big pie. Don’t worry about which account houses which mutual fund. For rebalancing, forget whether your stock mutual fund is in your 401(k) or your Charles Schwab investment account.

Let’s approach this idea with an example, so you can better understand how to put your rebalancing plan into action. Dylan is 35 years old, and has a workplace retirement account, an investment brokerage account and a Treasurydirect.com account (where he holds his government I bonds).

1. Create a master list of all of your investments. An asset allocation explains what percentage of your total investments to apportion to stock and bond assets.

Look at all of your investment accounts together. Dylan works at The Next Big Thing, Inc. where he has a 401(k) retirement account worth $30,000. In his account, he has $10,000 in a U.S. stock market index fund , $10,000 in an international stock index mutual fund (excluding U.S. stocks) and $10,000 in a U.S. bond fund. So far, Dylan’s portfolio looks quite simple. He has $10,000 in each of the funds.

However, like most investors, Dylan’s portfolio gets a bit more complicated. These aren’t Dylan’s only investments. He has other investments outside of his 401(k). His TreasuryDirect.gov account includes $10,000 in Treasury Inflation-Protected Securities.

Before Dylan began work at The Next Big Thing, Inc., he didn’t have access to a 401(k) or workplace retirement account, so he opened an account at a discount broker. In that account, he owns $5,000 in a small-cap U.S. exchange-traded fund and $5,000 in an international bond fund.

Dylan’s investments:

Now you have a list of all of Dylan’s investments. When you create your own asset allocation picture, create a simple chart like Dylan’s, listing each fund and its value.

2. Figure out your current asset allocation. Figuring out the asset allocation is quite simple. Group asset classes together: stocks in one category and bonds in another. Initially, ignore the accounts, and simply look at the individual mutual funds.

To calculate the asset allocation, simply divide the amount in each asset class by the total portfolio value. Dylan’s asset allocation is 50 percent stock assets and 50 percent fixed income assets ($25,000/$50,000 = 50 percent).

3. Determine your desired asset allocation. This step requires a bit of thinking. Many factors go into your preferred asset allocation. First, there’s your age. Since stocks offer higher returns in exchange for greater volatility, some financial advisors suggest younger investors tilt their assets toward stocks.

Regardless of your age, if you are tempted to sell at every small drop in your portfolio’s value, then you may not want to overweight stocks, even if you’re younger. Another asset allocation consideration is how much you can stomach volatility in your investment value.

Miranda Marquit explores other determinants of the risk tolerance question, in a U.S. News and World Report blog post, “What’s Your Risk Tolerance?” For another approach, you may want to take one of many “risk tolerance” quizzes to get a more precise asset allocation.

For simplicity sake, let’s look at common rule of thumb for asset allocation. Financial advisors frequently suggest you subtract your age from 100 to get the percent you should allocate to stocks, and put the remainder in bonds.

If we use this approach for Dylan, then 100 subtracting 35 gives us 65. With this simple approach, Dylan would place 65 percent of his assets in stock funds and 35 percent in bond funds.

4. Compare your desired asset allocation with your actual asset allocation. This step’s easy. In the second step, we found Dylan’s asset allocation was 50 percent stock assets and 50 percent fixed income assets. His desired asset allocation is 65 percent stocks and 35 percent bonds. Dylan didn’t realize his asset allocation was so conservative. He is 15 percent underinvested in stock assets, and 15 percent overinvested in bond assets. Here’s where the rebalancing comes in.

5. How to rebalance. There are two ways to rebalance. The first way is the simplest rebalancing method. Redirect all future investment dollars into the underrepresented asset classes. Dylan would stop investing in bonds and put his future dollars into the stock assets. Specifically, he could stop contributing to the bond fund in his 401(k) for a while, and direct all contributions to the stock funds. Over time, his stock assets would increase, and the bond percentage would decline.

This strategy is gradual. Every six months, it’s a good idea to recalculate the asset allocation to find out whether you are approaching your preferred asset allocation. If you are, then you’ll redirect contributions in line with your preferred mix: 65 percent to stock funds and 35 percent to bond funds.

The more precise and rapid approach is to sell bonds, and buy stocks until the asset mix is in line with the desired allocation. Dylan could sell 15 percent of his bond funds. If he multiplied $50,000 times 15 percent, giving him $7,500, he could use the proceeds to buy $7,500 of his stock funds. This would immediately realign his asset allocation.

In the end, however you rebalance, research has shown annual rebalancing will net a small increase in long-term returns. The reason is simple: You’re selling the overvalued, or more rapidly appreciating, assets and buying the undervalued ones.

Rebalancing is a disciplined way to buy low and sell high.

Barbara Friedberg, MBA, MS , is a portfolio manager, consultant, website CEO and author of “How to Get Rich; Without Winning the Lottery.” Learn more about money and pick up her newest free investing book at Barbara Friedberg Personal Finance.com.

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5 Steps to Rebalance Your Investment Portfolio originally appeared on usnews.com