As the stock and bond markets have fluctuated wildly since March when news of Covid-19 cases were first reported in the US your investments invariably experienced the ripple effects of that volatility. Depending on what percentage of your portfolio was invested in stocks vs bonds has dictated how much fluctuation you have seen in your portfolio so far this year.
What a ride it has been…
When the S&P 500 Index, which is the benchmark for large US stocks, hit its bottom on March 23rd it was down 34% ytd. As of July 14th the S&P 500 Index was down .31%. Due to this rebound the value of the US stock portion of your portfolio is just about back to where it was to begin the year. Bonds have fluctuated throughout the year as well and at their low on March 19th bonds were down 6.3%, but as of July 14th bonds were up 6.87% (as measured by the Barclays Aggregate Bond Index).
Selecting the appropriate asset allocation and investments…
When initially establishing a target asset allocation for our clients we take into account their risk tolerance, timeframe and objectives. Our analyst researches the universe of investments and selects the best investments to incorporate into our client’s portfolios based on various criteria, such as, cost, and management style/performance as well as investments that complement one another to increase diversification which in turn can help reduce market volatility.
How frequently we review our client’s portfolios…
Once the portfolio is established and money is invested we then review our client’s portfolios on a quarterly basis with the intent of determining if any changes need to be made. We don’t necessarily make changes every quarter but feel this is a good timeframe to evaluate our client’s portfolios and when warranted we will make “off-cycle” changes as well. This is typically when there are large fluctuations in the stock market.
When is the right time to rebalance…
Any time your portfolio drifts by a certain percentage or the markets create buying/selling opportunities is a time to rebalance. The key importance to rebalancing is having a consistent, disciplined approach.
Why is rebalancing so important you ask...
Because without the proper allocation a client’s portfolio would not be aligned with their risk tolerance, timeframe and objectives. This would lead to the portfolio taking on more or less risk than is appropriate. The other purpose of rebalancing is to build a client’s discipline in sticking with a plan. Over time should the client’s circumstances change, which invariably they will, then we would re-evaluate their asset allocation and make the necessary adjustments.
At the end of the day we are looking out for our client’s best interests and a properly allocated portfolio is of utmost importance in meeting that expectation.