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Rebalancing Revisited: Are Your Allocations Out of Whack?

Whatever their desired asset allocations, the extended bull market has made many investors stock-heavy. Now may be a good time to consider rebalancing their portfolios to mitigate drawdown risk.

z - Cover Image: Rebalancing Revisted: Are Your Allocations Out of Whack?

As investors perform the annual rite of reviewing their portfolios for the new year, they may find their overall portfolios very imbalanced. A portfolio that started 2019 as 60% stocks and 40% fixed income may have morphed into a much larger than desired stock allocation, placing investors at considerable risk when markets revert to the mean.

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Index Definitions—The S&P 500® Index is a free-float market-capitalization weighted index of 500 of the largest U.S. companies. The index is calculated on a total return basis with dividends reinvested. The MSCI EAFE® Index (net) is a free-float-adjusted market-capitalization weighted index that measures developed foreign market equity performance, excluding the U.S. and Canada. The index is calculated on a total return basis with net dividends reinvested. The Bloomberg Barclays U.S. Aggregate Bond Index measures the U.S. investment grade fixed rate bond market. The index is calculated on a total return basis.

A pullback (or drawdown) is usually quoted as the percentage between the peak and the trough prices during a specific record period of an investment, fund, or commodity.

Investing involves risks and the possible loss of principal. This report is based on the assumptions and analysis made and believed to be reasonable by the Adviser. However, no assurance can be given that the Adviser’s opinions or expectations will be correct. This report is intended for informational purposes only and should not be considered a recommendation or solicitation to purchase securities.

Equity Securities: The market price of equity securities may be adversely affected by financial market, industry, or issuer-specific events. Focus on a particular style or on small or medium-sized companies may enhance that risk. Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities. Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk. Allocation:  Asset allocation does not guarantee a profit or protect against a loss in declining markets.

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