monitoring your portfol i o
By Matt Andreas,
CIMA, financial advisor,
Investment Partners, LTD,
[email protected]
LESSONS LEARNED FROM THE PAST
CAN HELP PROTECT YOUR FUTURE
I LEARNED A LONG TIME AGO that the key to successful invest-
ing isn’t predicting the future, it’s learning from the past and under-
standing the present.
I’ve talked with clients about the importance of diversification. I’ve
also been able to point to some key events of the last few years –
and the learning opportunities that followed. As a result, I believe
there has been a greater understanding of how an investor’s port-
folio can fail to keep up with the bull market we’ve had since 2009.
In the midst of the 2008 financial crisis, for example, a portfolio
that included bonds saw reduced losses, enabling these diversified
portfolios to recover much faster than a portfolio of stocks alone.
And don’t be fooled into thinking you can secure a better return by
predicting what the market will do next. There has been a heavy
cost associated with trying to time the market. A famous Dalbar
study titled Quantitative Analysis of Investor Behavior drives home
that point. The study estimates that over the last 20 years, the aver-
age investor achieved a low 2.3 percent annualized return as com-
pared to the nearly 7 percent in a 60/40 stock/bond portfolio. Inves-
tors tend to let their emotions take over, which can lead to poorly
timed investment decisions.*
say, 5 to 10 percent. You could also set a regular date. For example,
many people prefer tax time or the end of the year. To stick to this
strategy, you’ll need to be comfortable with the fact that investing
is cyclical and all investments generally go up and down in value
from time to time.**
As you know, we can’t predict the future. However, appropriate as-
set allocation, diversification and rebalancing your portfolio when
needed has proven to be a sound, long-term investment approach.
What Will Your Strategy Look Like?
There’s no guarantee that your investment strategy will be success-
ful. All investing involves risk, including the possible loss of your
principal investment. Even diversification cannot guarantee a profit
or protect against loss in declining markets, and it certainly cannot
guarantee that you’ll be able to achieve all your goals and objec-
tives. However, I am happy to jump on a call to talk about your
unique investment strategy, and what you can do to protect your
investments to the best of your ability.
Rebalancing Your Target Percentages
The bull market that has endured since 2009 has likely impacted your
portfolio allocations and rebalancing your portfolio to reflect alloca-
tions that align with your goals and risk tolerance is important.
To bring your asset allocation back to the original percentages you
set for each type of investment, you’ll need to do something that
may feel counterintuitive: sell some of what’s working and use that
money to buy investments in sectors that currently represent less of
your portfolio’s makeup. Typically, you’d buy enough to bring your
percentages back into alignment. This strategy helps you maintain
a “constant weighting” of the relative types of investments. Main-
taining those relative percentages not only reminds you to take
profits when a given asset class is doing well, but it also keeps your
portfolio in line with your original risk tolerance.
One rule of thumb is to rebalance your portfolio whenever one type
of investment gets more than a certain percentage out of line —
Securities and advisory services
offered through Commonwealth
Financial Network®, member
FINRA/SIPC, a Registered
Investment Adviser.
Sources:
* Dalbar Inc. 20 year annualized
returns by asset class (1997-2016)
** Monitoring Your Portfolio –
Commonwealth Financial
As you know, we can’t predict the future. However, appropriate asset
allocation, diversification and rebalancing your portfolio when needed has
proven to be a sound, long-term investment approach.
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