Market Update and RebalancingSubmitted by LWM | Linden Wealth Management LLC on March 26th, 2018
It has been a wild and unpredictable first quarter. After reaching highs in late January, equities then tumbled 10%. As quickly as they went down, they appeared to be reversing themselves, and there was the talk of a "V" shape recovery. That soon faded as the market woke to concerns of trade-tariffs sending us back to February lows:
So how have portfolios performed?
They're down in value, but not as much as the market. What a portfolio holds, its asset-mix determines the risk-and-reward characteristics. The broader diversification and balance has helped.
When markets move as they have, we examine portfolios to see if the risk-and-return characteristics have changed. If they have a meaningful amount(+/- 5%), we rebalance.
5% Rebalancing Rule
We rebalance if portfolio weightings have changed by 5% or more. The 5% rule balances risk control and cost containment. Despite the substantial drop in equities, the 5% threshold hasn't been triggered. The good news is no meaningful rebalancing is necessary. You could always ignore the rule, but then your decision would be based on something more subjective.
The rule helps minimize mistakes. When the outlook becomes cloudy and uncertain, it inserts discipline and objectivity when needed most.
As a fiduciary and fee-only advisor, I don't make money by selling financial products. This means I'm free to recommend the strategies and investments that really make sense for couples and individuals, based on a clear understanding of where they're headed in life.
If an open conversation of this kind will be helpful to you, request an appointment now. Feel free to call out any specific questions you'd like me to address.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.