Rebalancing Your Portfolio

As mid-February creeps near and the first quarter of the year officially reaches its halfway point, we’re feeling the urge to step back and take stock of how our 2020 goals are shaping up. While Americans love a good New Years’ resolution, it’s no secret that for most people, many of those well-intended aspirations that were so motivating in January tend to fall to the wayside come February.

Despite this discouraging trend, one area that we should all be keeping top of mind, regardless of the time of year, is our financial health.

A common pitfall of personal investing is the “set it and forget it” mentality. Many investors, regardless of experience, have found themselves in the unpleasant situation of having set up a healthy portfolio to start only to find that one, two, or even several years down the road, their assets are not reaping the level of rewards originally envisioned.

So what’s a person to do? How do you make sure you’re maximizing those hard-earned dollars and setting your investments up for success year after year?

The answer can be summed up in one word: Rebalancing.

The most fruitful holdings call for attention and tending to, and while getting in the habit of regularly assessing and redistributing your wealth may sound like more than your schedule can bear, we’re here to tell you that it’s well worth the time.

Keep reading to learn more about what a smart asset allocation strategy means, how regularly rebalancing your portfolio can help move your holding toward peak performance and why the time is now to get on a path to sound financial health.

What is smart asset allocation, and how can rebalancing support this strategy?

When first setting up a portfolio, it's crucial for investors to have a clear understanding of what personal circumstances are at play and what their short and long-term financial goals are. Answers to questions like, “How long do I have to let my investments grow?”, “Am I saving for the kids’ college tuition or are we hoping to buy a home soon?”, “How quickly can I access liquid cash if the need arises?” can help guide you toward choosing which asset classes to store your wealth in and how much to put toward each – a process known as “asset allocation.”

There are a variety of investment types to choose from, from precious metals like the investment-grade coins and bullion bars offered by the United States Gold Bureau to stocks, bonds, or even real estate options.

While the exact makeup of one’s holding will depend on a variety of life factors such as investing timeline, age or proximity to retirement, risk tolerance, and financial expectations, a practice we have seen work time and again is diversification. Or put another way, not putting all your financial “eggs” in one investment “basket.”

Once your holding is established and funds distributed, you’re done, right?

Not quite. This initial set-up phase is only part of the story. Over time, the value of any given asset, be it gold, silver, real estate, or non-physical assets like stocks and bonds, is likely to shift based on market corrections, geopolitical policies, and other influential factors. All markets experience natural ebb-and-flow cycles, and individual portfolios tend to shift along with them. If left unattended, what was once an ideal wealth distribution can become off-kilter, unbalanced, or even worse, downright risky.

Take a hypothetical portfolio that, at the onset, allocated 25% of the investor’s wealth to gold and the remaining 75% to a mix of stocks, bonds, and real estate. Over the ensuing five years, the investment markets shift, perhaps enduring a stock market correction, downturn in bond values, or spike in the price of gold. As a result, the same portfolio, if left untouched, could begin to appear lopsided. If the holding is not adjusted to accommodate the market shifts experienced, the investor could find himself with allocations no longer aligned with his original targets or goals.

What this hypothetical portfolio could have used is regular rebalancing.

In short, rebalancing is when an investor reassesses relative market performance and his or her financial priorities and redistributes his or her wealth based on those assessments. Once an investor establishes his or her holding, he or she must revisit the allocations regularly to ensure the distributions remain in line with the investor’s needs and are appropriate for current market conditions.

Much like specific allocation breakdowns, how often an investor should be rebalancing will also depend on his or her unique life circumstances. Additionally, as an investor moves through life and career, priorities and goals may transform, and rebalancing efforts should also adjust to reflect the investor’s needs at any stage of life.

Our Smart Asset Allocation guide outlines a few different investment approaches to consider when establishing – or even revisiting – an asset holding of your own. If you would like to learn more about designing a portfolio tailored specifically for your life, give our team a call today (800-775-3504). We will partner you with a dedicated Precious Metals Expert equipped to address your unique situation and set you up for success!

Why should I worry about rebalancing?

While rebalancing is a critical step toward building a robust and enduring portfolio, our assessment of the industry indicates that many investors aren’t doing so.

So just why is it so essential to rebalance?

Since March 2009, our economy has continually improved, leading to the best-performing U.S. bull market since World War II, not to mention the longest-running upward trajectory in U.S. history.

That sounds like great news. If things are going so well, why change?

This is an excellent question and one that we find lulls many investors into inaction or complacency when it comes to personal investments.

Based on historical trends, we are due for a market correction – soon. While the media’s most doom-and-gloom rhetoric surrounding the impending stock market crash has subsided since the height of concern last summer, as we wrote about here, we’re not in the clear yet.

In this assessment, we wrote about a survey from The Conference Board that was reported on by Business Insider last month, finding that recession remains a top concern for CEOs and other C-suite executives around the world in 2020. What’s more, fears of recession jumped to the number-one spot (up from third in 2019) on the list of top concerns for business leaders here in the U.S. “Trade uncertainty, political instability, and more competition from disruptive technologies” are also driving executive-level anxieties, the study found.

Additionally, the amount of negative-yielding debt across the globe hit its highest point in Summer 2019 since at least 2012, according to Bloomberg. At those peak levels, the assessment found, one-third of all investment-grade bonds reflected yield rates less than 0%, meaning that investors who planned to hold this collective $17 trillion worth of securities through to maturity were guaranteed to make a loss.

Much like stock market reporting, the most negative sentiments surrounding the bond market have also lightened somewhat. Although, we’re not totally in the clear on this front either, for many of the same reasons.

The same Bloomberg report on the bond market points out that the continued high volume of sales in this sector is an indication of the strong desire from investors to find a safe place to store wealth.

These findings mirror what we have discovered through our assessment of investing patterns. According to our research, most investors are interested in gold and other precious metals primarily as a means to diversify their wealth, and in turn, hedge against economic turbulence. The second highest reason for investing in precious metals, according to our findings, is fear of financial or stock market collapse or decrease in the value of the U.S. dollar.

Given recent indicators like those mentioned above, it's clear that the time is now to take a good hard look at the state of your investments. Rebalancing is the key to most effectively leveraging your assets against the perils of recession. We encourage all investors to take the necessary steps to protect their hard-earned wealth both now and in the future.

Ready to take the next step? Our team of Precious Metals Experts is standing by to assist. Give us a call today at 800-775-3504.