The Benefits of Disciplined Rebalancing

A quick philosophy recap:

  • We believe in broad, global diversification. This means owning stocks in the US as well as a significant allocation to international stocks (companies based outside the US). See more on the Benefits of Global Diversification in this blog post from April, 2017.
  • We believe in having an Investment Policy Statement, or a plan for how much you should own of each asset class and how much of your assets should be in fixed income v. stocks. These decisions are based on your specific situation, age, goals and risk tolerance.
  • We believe in rebalancing your accounts throughout the year, based on what is happening in the financial world, not just at year end.
  • We believe in being patient and disciplined.

Why does this matter, today in 2017?

So far in 2017, International stocks and Emerging Markets (smaller international countries) are far out-performing US stocks. For the past few years, non-US stocks had underperformed US stocks.

  • By being patient and disciplined, we maintained the exposure of our clients’ accounts to global investments, not just US stocks. Our clients are benefiting this year for being patient and disciplined. True global diversification works over time.
    • This practice of rebalancing enables an investor to accomplish the goal of buying low and selling high.
  • The year to year changes in the markets are often unexpected. 
    • By the end of 2016, the US small value asset class was the top performer for 2016.
    • For 2016, larger International asset classes underperformed other asset classes.
    • As we rebalanced accounts late in 2016 and early 2017, we would have generally reduced the allocation (or taken some profits) from the US small value asset class and increased the allocation of the International asset class, toward their target allocations.
    • Fast forward to early June, 2017. International and Emerging Markets are top performers and US small value asset class is lagging.  Rebalancing works. But you need to be disciplined and adhere to it.
    • Conventional wisdom is not positive about Europe. Most people feel the US economy is stronger than most overseas economies.
      • However, perceptions and actual stock market returns are often two very different things. International markets are outperforming US stock indexes in 2017.
      • This is why we do not rely on predictions, forecasts or concerns. The financial markets are efficient and act in ways that few can accurately predict over long periods of time.

Our conclusion

You want to have a successful financial experience.

You want a sense of greater financial security and don’t want to worry.

You want to be confident about your financial future and that you will not run out of money.

You want to sleep well at night (at least not be up at night with financial concerns).

By adopting the investment philosophy and principles we have utilized, you should be able to have the financial security you desire and sleep well at night.

Because of the strategies we have adopted for the advice we provide to our clients, we also sleep well at night. And that should be re-assuring to you as well.


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