Smoothing the Ride

By Robert DeVries

Many individual investors are concerned about the current levels of the equity markets with the Dow topping 20000 and S&P500 2300. Some are concerned about the valuations that those levels imply and want to move to cash for some of their portfolio. Others are hesitant to sell their winners when they are on such a run. Laura Chiesman, President at FirstWave Financial, recently wrote a blog about why market highs don’t provide actionable information. You can read it HERE.

What’s required for a successful investment experience is a disciplined approach to rebalancing that is consistently applied to your portfolio. Too often, investors let emotion (either fear or greed) come into play, particularly when fueled by the media. Sometimes, investors harm themselves because they are ‘sure’ about a specific outcome that is going to impact the markets. Think about the Brexit vote and US Presidential election. Think markets at ‘all-time’ highs.

Rarely does emotion aide us in investing or predicting the future. By sticking with a globally diversified portfolio and rebalancing according to rules set out in advance, investors can take the emotion out of investing and turn the natural rotation between asset classes into an opportunity to sell high and buy low and return their portfolio to their expected return and risk parameters.

If rebalancing is ignored, or allowed to lapse, asset classes with higher expected returns will increase in weighting over longer periods of time. Expected return for the portfolio would increase, but so would expected risk. So rebalancing is the act of keeping the portfolio’s risk and return expectations consistent with the asset management objectives defined by an investor’s investment and financial plans. Allowed to drift, the portfolio increases the risk of derailing the plan due to risk or provides excess return above that which is required by the financial plan.

Working with an investment advisory firm like FirstWave Financial can provide the crucial steps by matching your risk tolerance to the return required to meet the obligations of your financial plan and by enforcing the discipline required to rebalance.

For more about the importance of rebalancing, we suggest you read Rebalancing Act from Dimensional Fund Advisors.

If you have questions or need help putting a plan in place and would like to schedule a complimentary consultation, please call our wealth services firm in Satellite Beach, FL – Melbourne/Brevard area at (321) 773-7773 or visit us at to schedule an appointment!

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, or any non-investment related content, made reference to directly or indirectly in this publication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this publication serves as the receipt of, or as a substitute for, personalized investment advice from FirstWave Financial. A copy of FirstWave’s current written disclosure statement discussing our advisory services and fees is available upon request.