The Waves of Retirement Investing: Is it time to Rebalance and Reallocate?
In any market Adaptability is key. In this post, we want to reinforce the reasons for reallocation and rebalancing to uncover the positive impact of portfolio maintenance. Can you find financial stability and discover the power of adjusting your metaphorical sails in the pursuit of long-term gains? Absolutely! probably better than our ability for alliteration.
Our goal, if any, is to empower you with knowledge and insight to help you make informed decisions about your personal finances and by no means offer you financial advice. It is recommended you consult with professionals, academic journals, research publications, or even seek help from a financial rep offered through your investment account.
Portfolio
under this allocation investors earned less than the S&P 500 index has returned on average for the same time period. ≅11%
It may be hard to believe but studies show that people remain relatively inactive and make infrequent changes to their retirement investment allocations. Many individuals exhibit inertia and stick with default investment options or initial investment choices for long periods without making any adjustments. And, if you happen to be one of those, it would be our pleasure to help.
For the most part there are 3 common instances when adjustments made are: life events, year-end rebalancing and market conditions. The latter of which we’ll discuss further.
For life events we are referring to major life events, such as marriage, birth of a child, retirement, or changes in employment. This can prompt individuals to review and adjust their investment allocations. These events often lead to a reevaluation of long-term financial goals and risk tolerance, which may result in changes to investment strategies. With year-end rebalancing individuals may choose to review and adjust their investment allocations at the end of the year. This can be driven by several reasons, such as tax considerations, aligning investments with long-term goals, or taking advantage of any tax-loss harvesting opportunities.
When referring to market conditions, significant market events are consistently covered on the news. This is often referred as “noise” such that they cause market downturns or upswings in the short term. These events may impact investment accounts and some individuals panic by moving assets to conservative investments, while others may see it as an opportunity to increase their allocations to stocks or riskier assets. Of course, motives vary, investor to investor, so it pays to look for and study how a seasoned player behaves. Capturing the short-term gains of an explosive stock (for example $NVDA) commanding the current news cycle may bring in some fortuitous returns to your portfolio but can also lead you to overpay for a stock that later goes through a price correction. Leveraging informed strategies is essential when making tactical moves with a long-term perspective and it is usually better advise for any investor.
Individual behaviors and risk preferences can vary significantly for each participant. BMG would love to be given the opportunity to evaluate every single one of its readers financial status. However, until then, it is quite impossible to offer a blanket statement discussing what your allocations or rebalance should look like. Additionally, advancements in behavioral finance and technology can add to your influence in your reallocation decisions.
As mentioned above, we hope to offer insight and knowledge that can help those that wish to pursue long-term gains. Our choice and preferred method of allocations strategy is a play on what is called a core-satellite portfolio. A core-satellite approach seeks to strike a balance between stability and growth by combining the benefits of passive, index-based investing with active investment strategies that incorporate alternatives. The components of the portfolio can vary depending on an investor's risk tolerance, investment goals, and time horizon.
Studies show that adjusting your allocations into more illiquid positions like alternative investments proves to generate a much better risk adjusted return for your retirement account.
The hard part may not only be learning about the asset class but also gaining access. The world of retirement accounts is changing and alternatives are a way of making your existing portfolio more resilient to inflation and the range of disparate market environments
Alternative assets, such as real estate, commodities, private equity or hedge funds, often exhibit lower correlation to traditional stocks and bonds. By diversifying the portfolio with non-traditional assets, investors may potentially reduce the impact of inflation and benefit from alternative investments' potential to perform differently under varying market environments.
We are in a market environment of interest rate hikes, debt ceiling patches, high inflation, high T-bill issuance, liquidity and bank reserves uncertainties, pressing climate change issues, etc, etc, etc. It is understandable why many prefer to hold cash. In our opinion it is very costly to be overly cautious. Therefore our plan is to stay engaged and proactive as we spend time in the market pursuing long-term opportunities and less of our energy timing the market.
Looking for an additional perspective?
When did you last make adjustments to your contributions or rebalance your portfolio?
Don’t hesitate to reach out.
