Why Regular Rebalancing Makes Sense

Your investment portfolio may be off-kilter, and you may not even know it.

Is 80% of your portfolio held in equities? Perhaps it is without you realizing it. You could invite this risk, and others, if you go too long without rebalancing your portfolio.

 

Some investors stick with the same asset allocation in their investment portfolios (and retirement accounts) for decades: they “set it and forget it.” The longer the initial (target) asset allocation goes unreviewed, the greater the potential divergence between the target allocation and the actual allocation.

    

Just how off-kilter can a portfolio become without rebalancing? Some research from the respected financial analytics firm Ibbotson Associates provides an answer. Looking back, a portfolio with a 50/50 split between equities and fixed-income investments in 1926 would have had 96.7% of its assets held in equities and 3.3% in fixed-income vehicles by 2010 without rebalancing. Even a portfolio with only a 10% stake in equities in 1926 would have become 76.3% equities by 2010 with the same inattention.¹

 

While these examples use an 85-year window of time, the lesson is clear. Inattention allows style drift: a shift away from the stated investment policy for the portfolio. (Heavier weighting in equities over time also implies increased volatility for the portfolio.)

   

What factors should lead you to rebalance? The first factor is the passage of time. You may wish to rebalance your investments every six or twelve months or just as needed in response to changing market climates. The other factor is variance. You may want to rebalance when the percentage of assets held in each asset class varies notably from the target allocation.

 

What should you rebalance? You can rebalance the percentages of assets held in various asset classe, or your investment choices within an asset class. (You can do both if you wish.)

 

In a bull market, having a greater percentage of your invested assets in equities than you would ideally intend may work out well. In a flat or down market, it may hurt your return.

Getting away from your defined long-run investment strategy can potentially impact your entire financial and retirement plan. Rebalancing gives you a chance to put your portfolio back on track.

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - thebalance.com/rebalancing-your-investment-portfolio-357128 [11/8/17]

Avoiding the Money Pitfalls of Past Generations

Take these financial lessons to heart.

You have a chance to manage your money better than previous generations have. Some crucial financial steps may help you do just that.

     

Live below your means and refrain from living on margin. How much do you save per month? Generations ago, Americans routinely saved 10% or more of what they made, either depositing those savings or investing them. This kind of thriftiness is still found elsewhere in the world. Today, the average euro area household saves more than 12% of its earnings, and the current personal savings rate in Mexico is 20.6%.¹

In 1975, the U.S. personal savings rate hit an all-time peak of 17.0%; it has been below 4% since June. Easy credit is one culprit; the tendency to overspend in a strong economy is another. Remember to pay yourself first, not credit card companies. Collect experiences rather than possessions.¹ 

  

Recognize that there is no “sure thing” investment. Investors found that out in 2000 and 2007 when things shifted in the financial and housing markets. What returns 15-20% a year from now may not next year or three years on. Diversification matters: you never know what asset class might soar or plummet in the future, and allocating your assets across different investment types gives you the potential to reduce overall portfolio risk.

Plan for a 30-year retirement. According to Social Security estimates, the average 65-year-old man is currently projected to live until age 84, and the average 65-year-old woman, to age 87. With advances in health care, living to 95 may become the norm for the average 35-year-old.²

 

Plan for your retirement first, your children’s college education second. Some baby boomers did the inverse, and some who did wonder if they made the right decision for their futures. College students can work and receive financial aid; for senior citizens, it is a different story.

 

Switch jobs for better pay. Generations ago, people tended to stay at the same job for several years or longer, whether their prospects were promising or not. If a better job lures you, do not be ashamed to leave your current employer for it – you may gain, financially. Payroll processing giant ADP found recently that a job change resulted in an average pay increase of 4.5% for a full-time worker.³

 

Congratulate yourself on the good moves you have made, and plan more. Make another good move and chat with a financial professional about the ways you can continue to plan for a prosperous future.

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - tradingeconomics.com/united-states/personal-savings [12/14/17]

2 - ssa.gov/planners/lifeexpectancy.html [12/14/17]

3 - theatlantic.com/business/archive/2016/02/job-switchers-raise/460044/ [2/8/16]

Advancing Toward Your Career Goals

Should you change jobs in pursuit of them? Or position yourself in a new way at work?

Is your career unfolding as it should? If not, maybe it is time for a change; either a change of jobs, or a change in your role at your workplace.

   

Pay attention to the signals of a stalled career. If the status quo at your office bothers you, or if you feel apathetic or nonchalant about your work, you have company. A recent Aon Hewitt poll found that only 63% of employees felt sufficiently engaged on the job. According to a Gallup poll, even fewer Americans truly like what they do for a living: just 32% of employees are “involved in, enthusiastic about and committed to their work and workplace.”¹

 

If you find yourself dreaming of an escape and doing just enough to avoid getting fired, you have three basic avenues. One, go into business for yourself (a move that is impractical and terribly risky for most people). Two, change jobs. Three, see if you can make yourself more valuable and more engaged where you are.

   

Should you leave or stay? If your job amounts to a dead end, then leaving is probably your only option. If your workday simply bores you or you have issues with your pay or your role, leaving is also an option; you also may want to talk with your supervisor or boss to see how things can change where you are.

 

If you consider another job, look beyond the offer. A company may woo you with a terrific compensation package, a better title, and a nicer place to work; you should see these as short-term pluses. Does this new job really represent a long-term career move, or just a change of scenery? What kind of vision do they have for you? Do you get the sense that your vision matters to them? What kind of culture does this company have? Think ahead. Three to six months from now, do you think you will be happy at the new job? Two or three years from now, do you think your career will be progressing as it should thanks to this job change?  

      

If you stay, make the right moves to assert your goals and your value. What position do you want at work, as opposed to the one you have now? What is a reasonable next step? If you work for a larger employer, you might find several opportunities in multiple locations (think about if you want to relocate as a consequence of a promotion).

Schedule a meeting with your boss. Prior to having that conversation, think about the perception you want to create in your boss’s mind. During the conversation, promote it.

Tell your boss that you want to discuss your personal development, how your career can progress and evolve with the company. Share your reasons for bringing all this up; your aspirations, not your complaints. Mention the specific career move you would like to make, and the kind of contribution you could make in that new role. Tell your boss that, as much as you appreciate your current role, your heart tells you that it is time for a new role or a new challenge. (You might mention that you will be happy to train another employee to take over your old duties.)

This conversation should last at least 15 minutes. In the process, you may learn what kind of expectations your boss has for you, and see how they correspond with yours. (If you do not get a glimpse into that, it is worth bringing up.)

  

Keep in mind that being really good at your job may not warrant a promotion by itself. Even if you are fully engaged at work, you may be passed over if you fail to fully engage with the people with whom you work. Likeability is a big factor in promotion and career advancement, and networking is not just something you do to land another job, it is also a great idea at your current job.

Financially, a move to another employer might be the best move. Rightly or wrongly, changing jobs is perceived as a path to continually higher pay. In fact, one of the big criticisms of staying put is that your employer may only compensate you more if you insist.

   

Last year, the core Consumer Price Index advanced 2.1%. Meanwhile, real average hourly wages rose 1.8% according to the Bureau of Labor Statistics. Moving on to a new employer may help you cope with this kind of economic weakness. Payroll processor ADP, whose research arm tracks such data, notes that the average full-time employee changing jobs in 2015 received 4.5% greater compensation as a result of the move.^2,3

We may be reached at 800-916-9860.

www.wenadvisory.com

This material does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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.

Citations.

1 - washingtonpost.com/news/wonk/wp/2016/01/11/feeling-stuck-in-your-job-blame-management-consulting/ [1/11/16]

2 - tinyurl.com/zv64ge4 [5/2/16]

3 - theatlantic.com/business/archive/2016/02/job-switchers-raise/460044/ [2/8/16]