As I am enjoying the summer temperatures that came late this year and hopefully you are too, the bit of slower life this time of year hit me. Schools out, snow-birds are gone, and most community groups even go dark due to everyone’s vacation schedule. Yes, it feels like mid-year when I reassess my balance.
A tightrope performer balances their weight, so they don’t fall. From Cirque du Soleil to Barnum & Bailey physics is at work with weight rolling or swinging delicately back and forth to maintain a level playing field. Balancing continues as the death-defying momentum continues as the goal is reached on the other side. There are a plan and practice for this goal to be reached over and over again. It is no different from balancing a portfolio.
You do not have to practice countless hours each day to be successful with your investment portfolio, in any case. It starts with a plan where you identify what the right risk levels are for you. From a hundred percent fixed income to a hundred percent equities and everything in between, there is no right or wrong as long as it is what is right for you. Note though that within equities, fixed income or other asset classes, there are different sub-classes. For example, in the fixed income asset class, there is a bank certificate of deposits, government-backed bonds, treasuries, municipal, and corporate bonds, to name a few.
It is common for a portfolio to have a strategy that includes several asset classes and within those classes, diversification into sub-classes. In addition to this, I recommend selecting a few sectors to favor, and a small number of individual investments aimed at outperforming the general asset class it belongs too. Building a portfolio can get quite complicated. Nowadays, there are several tools online if you are a DIY or any reputable Registered Investment Advisor who will be able to assist in building a strategy that is right for you.
So similar to a tightrope performer, you have a goal of what you want your investments to return when your timeframe is reached. As the market shifts one direction, it is similar to the performer on a tightrope leaning one way or another. A portfolio takes the same action with one asset doing better or another under-performing. Overtime this continually changes so that each asset class will outperform and underperform during different periods. As this happens, the portfolio will have too much weight on one side and not enough on the other side. If this is not corrected the original strategy of your portfolio will get out of whack. Just like a tightrope performer, out of balance, your portfolio will fall.
At some point, everyone has heard the saying, “buy low and sell high.” This is the same mentality used when balancing a portfolio. Most call it rebalancing since you adjust it once, then work to maintain it. The side that went up the most you take profits in, sell, and then buy what is low. Math has to be applied to calculate how much to sell and buy to maintain your original weightings. Once you do this a few times, it will become second nature. Some often rebalance but at the least once a year is always recommended. So take this time of year to rebalance your portfolio; it doesn’t matter what the annual circus is.
Andrew F. Kotyuk, CIMA* is CEO and Principal of Alpha Wealth Management LLC, send questions or comments to [email protected]