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Shawn M. Leonard's  Instablog

Shawn M. Leonard
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I became involved in portfolio and asset management on the Registered Investment Advisor platform, growing my private client’s portfolios to over $300 million at both Fidelity Investments and Schwab Institutional Investments. My team also successfully manages assets for a number of financial... More
My company:
Garrison Asset Management
  • Rebalancing: A Necessary Action 1 comment
    Oct 14, 2009 9:27 AM | about stocks: JPM, C, F
    Well, the good news is that we are approaching Dow 10,000. The bad news is that Dow 10,000 may be nothing more than a good rebalancing opportunity. 
     
    Most of us understand the importance of staying on course with a disciplined long-term investment plan.  Sure, it's fine to set aside some extra cash and try to time the market and make high-risk bets, but for most of us, accumulating or preserving enough wealth to retire comfortably is top priority. 
     
    It's easy to sit down and create a long-term strategy for the future. Anyone can do it. Just pick a basket of investments and you're done. Whether you are adding to your accounts or drawing income, the markets have their ups and downs and in the end you will be just fine, right?
     
    If you disagree keep reading.
     
    Over the next few weeks we are going to focus on several different concepts that are important to consider when managing your portfolio.  Keep in mind that if you are a client, we already take care of this for you.
     
    Let's start with the most important concept of all - your personal emotions.
     
    Emotions are bad in the investment world.  Just like most things in life, when you make emotional decisions, the outcome usually ends up being dismal. First and foremost check your emotions at the door before you make your next investment decision. We all know that discipline is key in both life and investing.  If you can't help but second guess and worry about every investment decision you make, I would seriously consider hiring a professional to implement discipline before you time yourself right out of the market altogether.
     
    One of the hardest concepts involved with disciplined management is the act of rebalancing.
     
    Who wants to buy stocks like JPM, C, F and many others  at Dow 6,500? Who wants to sell some of those same stocks after a huge run off the bottom? 
     
    No matter how volatile the market may be, our goal is to remain disciplined and true to your long-term strategy. Believe me- it's ok to sell a portion of your best stocks when they are up. Taking some gains in an effort to remove some of the risk that has been added to your portfolio is not the end of the world, especially in this market.
     
    I recently spoke to an investor who lost over 50% of his portfolio in 2008. He said his former manager had done very well up to that point. When he started with the manager his objective was 60% equities and 40% fixed. Then as the years progressed and equities delivered favorable gains over bonds his portfolio became over-weighted. Not only that, but as he grew older the portfolio actually began taking on more risk because no rebalancing was occurring - a bad equation. By the time the Dow reached its high in 2007 the client was about 80% equities and 20% bonds. Then the sell off occurred and we all know the rest of this story.
     
    With the recent rally in the markets this is a vital time to review your portfolio and practice the art of rebalancing.
     
    Portfolio rebalancing is an important part of sticking to the strategy and achieving financial success. Although it is difficult to reposition your accounts after you have seen a significant increase in your assets, it is necessary to maintain a comfortable level of risk and keep your portfolio in line with your target allocation. Stay disciplined especially in times like these.
     
    As always, please contact us if you have any questions! You can reach us anytime at 877-442-0042.
    Stocks: JPM, C, F
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  • TradingHelpDesk
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    Comments (538) | Send Message
     
    Welcome. Good article. Worth a follow. More please.
    17 Nov 2009, 09:21 AM Reply Like
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