Stocks Are Up: What To Do Now

The stock market is off to a TREMENDOUS start in 2024... 

BUT, rebalancing portfolios on a regular basis—during good times and bad—is key 🔑

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Transcript

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Welcome to you and your money. Empowering you to reach your goals, with tips to help you plan well, invest well and live well. Today's episode features Lawrence Hale, principal managing partner and chief investment officer Weiss Hale and Zahanski strategic wealth Advisors. we're going to discuss, first of all, the strong stock market performance so far in 2024 and lead into the importance of rebalancing investment portfolios. So again, a very good start for twenty twenty four s and p five, five hundred new record highs. and it's up year to date. So I imagine many listeners have seen some gains in their portfolios. Well, if you're invested in stock absolutely. I think it's definitely caused by a number of things. With the strong, corporate earnings have provided a boost. The Fed has basically paused or at least reduced their chances of any further rate increases and are likely going to be decreasing interest rates later this year. And the economy continues to show resilience. so it's definitely been a great year and that has thrown portfolios a little bit off kilter if you have a mix of stocks and bonds. So let's talk about that. So things are going great. You might be thinking, just leave it alone. But your advice is to look at rebalancing. Why is that important? Yeah, rebalancing is definitely something that's important, and it's, rebalancing is different than changing your investment strategy. I just want to make sure that that's clear. So what is rebalancing? So rebalancing is essentially taking an asset that has grown considerably, think stocks, for example and reallocating those to make sure that you're staying within your portfolio target. So, for example, if you have a portfolio that maybe started with 60% in stocks and 40% in bonds you may find that it's evolved to something like 80% stocks and 20% bonds. And that may mean the portfolio has more risk than you actually desire. So what about if it goes down rapidly, then what? Well, if it goes down, then obviously you may need to rebalance in the opposite direction. So let's use the same example, starting with a 60% stock, 40% bond target. let's say the stock allocation shrinks to 45%, and the bond allocation then has comprises about 55%. This may actually make your portfolio more conservative than intended and not offer the same kind of growth potential. So rebalancing involves adjusting the portfolio to reflect the original asset allocation or original strategy that is part of the investors investment plan. So you can see that now, how rebalancing on a regular basis during good times and bad times is definitely a key to ensuring that your investment plan is on track. And basically, it comes down to always paying attention to what's happening in the markets, making appropriate adjustments to your investments, whether they're up or down. and that goes a long way to managing risk and being vigilant about maintaining your investment strategy. All right, so this is all making sense, but let's get really granular. Now, walk us through the mechanics of rebalancing. How do you do it? Sure. So first, it's important to determine the impact of any taxes if you were going to be doing rebalancing. So if the portfolio happens to be in a tax sheltered account, like a 401K or an IRA, you don't really have to worry about taxes, because any changes aren't going to trigger capital gains. If the investments happen to be outside of a retirement account where taxes are a concern you do want to factor that in, and investors may want to realize the profit and pay taxes on it that may be worth it. Or an alternative may be adding additional funds to the portfolio, to the asset class or type of investment that is underweight or below target. Let's keep going with that. Provide an example of how an investor might rebalance the entire portfolio. Sure. So if a bond allocation has fallen with that same example down to 20% of the portfolio, an investor could use new cash to buy additional bonds to boost a portfolio's allocation back to 40%. Or another option might be taking all of the dividends and interest that the portfolio may earn and reinvest those into bonds over time. That will help rebalance the portfolio back to that 60%, 40% target. All right. so again, important portfolio maintenance. these are tasks investors should not neglect, obviously. explain the logic behind rebalancing from a performance standpoint, though. Yeah, absolutely, Gary. So asset classes do take turns outperforming over time, and there's really no way to predict the future. So, for example, over the past 16 years, real estate, small company stocks, emerging market stocks and other assets have all had standout years during that 16 year period. But over the full period, stocks or equities have definitely outperformed bonds or fixed income. And by rebalancing, you're ensuring your portfolio takes advantage of asset classes when they're outperforming without needing perfect foresight. So rather than chase returns rebalancing helps you keep a disciplined approach and keep your risk in focus and your portfolio on track to grow in the manner that you want it to. And this is an evidence based approach that can produce better risk adjusted returns over longer periods. It's really crucial to make sure that rebalancing is part of your strategic financial planning. As always, thanks for listening to you and your money. Find even more episodes, videos and other resources at our website whzwealth.com. Weiss Halen Zahansky Strategic Wealth Advisors offers securities and advisory services through Commonwealth Financial network member FInRa SIPC, a registered investment advisor, fixed insurance products and services offered through CES Insurance agency. They practice at 697 Povert Street, Pofford Center, Connecticut 06259 and can be reached at one Weissale and Zahansky Strategic wealth advisors do not provide legal or tax advice. The tenured financial services team strives to support clients in achieving their financial life goals. For more information regarding wealth management and customized financial planning with Weisshale and Zahansky strategic Wealth Advisors, please visit www. Dot whzwealth.com.