If you are like many investors, your portfolio is on cruise control.
Maybe you have automatic paycheck deductions funneled toward your 401k. And, you chose your allocation and funds months or years ago and haven’t looked since. That’s normal. People are busy. Families, kids, weddings, jobs, sporting events, and even school plays.
Tending to your finances often falls to the wayside.
Here are 3 reasons why it’s time to add “Rebalancing Your Portfolio” to your to-do list this month
- Lock In Some Stock Market Profits
It’s not a profit until you actually exit the trade. Sure, the stock market is posting healthy gains in 2017, but those numbers you are staring at in your IRA or 401k account are just “paper gains.” Until you actually hit the button to sell out a portion of your stock position in a quarterly or yearly “rebalancing” effort, it is just a paper profit that could disappear fast in the next correction or bear market.
In a well-diversified portfolio, history suggests it is good to sell some of what has gone up and buy more of what has gone down in your portfolio from time to time. Stocks have gone up this year. If you intended to allocate 60% of your portfolio to stocks it could be at the 70% or even 75% level right now.
Now is a great time to lock in some of those paper profits.
- Rebalancing Helps You Manage Risk
It’s important for any investor to rebalance in order to manage risk. For example, in the current environment where the stock market has been strong it’s likely that an investor will have a larger allocation to stocks. This larger allocation brings with it more market exposure and may be riskier then that investor can tolerate or even wanted.
Rebalancing brings your portfolio back into alignment so you can sleep easy at night.
- Individual Investors Rarely Succeed In “Timing” The Market
Individual investors often fall into the trap of trying to time the stock market. It is easy to say “I’ll sell it at the top and then buy it at the bottom.” It has been shown time and again that trying to outsmart the collective wisdom of the millions of smart, well-informed people who trade in the market is very hard to do consistently no matter who you are.
Rebalancing also means that investors are buy low and sell high, which after all is the goal in investing. Without the discipline of rebalancing, many self-directed investors tend to buy high (when markets are hot and rising) and then sell low (when the market has tanked and they panic).
Disciplined rebalancing keeps you away from that market timing trap.
What is rebalancing?
Rebalancing simply means selling a portion your winners and not letting your portfolio get off track from your goals and objectives. Pick a regular time – either quarterly, twice a year or once a year and realign the portfolio for your pre-established risk-level.
How to rebalance
It’s simple and easy to do. Pull out your statements and take a look at your entire investment picture. Rebalancing simply involves selling a portion of your portfolio and using those proceeds to increase another investment. For example, in today’s climate, many investors are selling a portion of their stock exposure and transferring those proceeds into physical gold. That locks in their stock price gains in a vehicle that is proven to hold your wealth over time. You can even easily add physical gold to your IRA account.
Why precious metals?
Gold acts as an insurance policy, a hedge against equity market declines and a vehicle to protect and grow wealth. Blanchard and Company recommends that its clients allocate 10-15 percent of their investment portfolios to gold. Recent research has shown that portfolios with a 30% allocation to physical gold have shown better overall long-term performance. When the equities markets falter, gold performs strongly which is why diversification is important in the first place.
We can help
It may seem like a chore, but taking a few hours this weekend to shore up your portfolio may be one of the most important things you do this month. If you want some advice or help in the process, one of the Blanchard portfolio managers will be happy to walk you through the process. Give us a call today!