{title} icon

Articles From Lumsden McCormick

Rebalancing Your Portfolio

Should investors make regular adjustments?

Provided by David A. Schlein, CPA

 

Everyone loves a winner. If an investment is successful, most people naturally want to stick with it. But is that the best approach?

It may sound counterintuitive, but it may be possible to have too much of a good thing. Over time, the performance of different investments can shift a portfolio’s intent as well as its risk profile. It’s a phenomenon sometimes referred to as “risk creep,” and it happens when a portfolio’s risk profile shifts over time.

Balancing. When deciding how to allocate investments, many begin by considering their time horizon, risk tolerance, and specific goals. Next, individual investments are selected that pursue the overall objective. If all the investments selected had the same return, that balance – that allocation – would remain steady for a time. But if the investments have varying returns, over time, the portfolio may bear little resemblance to its original allocation.1

How Rebalancing Works. Rebalancing is the process of restoring a portfolio to its original risk profile. There are two ways to rebalance a portfolio.

The first is to use new money. When adding money to a portfolio, allocate these new funds to those assets or asset classes that have fallen.1 

The second way of rebalancing is to sell enough of the “winners” to buy more underperforming assets. Ironically, this type of rebalancing forces you to buy low and sell high.

As you consider the pros and cons of rebalancing, here are a couple of key concepts to consider. First, asset allocation is an investment principle designed to manage risk. It does not guarantee against investment losses. Second, the process of rebalancing may create a taxable event. And the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a professional with legal or tax expertise regarding your situation. 

Periodically rebalancing your portfolio to match your desired risk tolerance is a sound practice regardless of the market conditions. One approach is to set a specific time each year to schedule an appointment to review your portfolio and determine if adjustments are appropriate.

David A. Schlein, CPA may be reached at 716-856-3300 or dschlein@lumsdencpa.com

www.fslumsden.com


CH32121

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities offered through 1st Global Capital Corp., Member FINRA, SIPC.  Investment Advisory services offered through 1st Global Advisors, Inc.

Citations.

1 - kiplinger.com/article/investing/T023-C000-S002-rebalancing-your-portfolio-to-reduce-risk.html [10/3/18]

 

Rebalancing Your Portfolio

for more information

Dave is a tax partner with over 30 years’ experience in service to closely-held family-run businesses, high-net-worth individuals, and for-profit flow-through entities. Dave’s expertise lies in the areas of real estate investments, the oil and gas industry, partnerships, S corporations, and closely held C corporations. His day-to-day activities include investment advisory services, the coordination and delivery of tax planning and compliance services for individuals and businesses. Dave is affiliated with 1st Global Capital Corp. as a Registered Representative holding his FINRA SIE, Series 7, and 66 licenses; he also holds Life, Accident, and Health Insurance licenses. 

SIGN UP TO RECEIVE OUR LATEST ARTICLES, NEWSLETTERS, AND EVENTS. SIGN UP

How Can We Help?