Revisiting the Rebalancing Act

May 19, 2022

Since reaching all-time highs near the beginning of the year, markets have grown increasingly volatile and have begun to stumble over the recent months. While the volatility and uncertainty can become unsettling for clients, it is important to stay disciplined and focus on the long-term plan. During times like this, our team at Financial Plans & Strategies is focused on adding value to your financial plan and using this volatility to best position your portfolio for the long-term. We do so through our daily rebalancing process, which allows us to evaluate each client’s portfolio, determine where you are under or overfunded (relative to your asset allocation target) and make the needed exchanges to get you back on track.


To learn more about this process, I encourage you to revisit our blogs titled: The Rebalancing Act , The Importance of Being Disciplined in Volatile Market, and an article from American Funds, which can be found below…



The Rebalancing Act

Last week’s blog post featured a video from Dimensional Fund Advisors about the importance of tuning out investment noise.  This week, we want to share with you how the Financial Plans & Strategies team works daily to manage your investments.


Financial Plans & Strategies takes an active approach in portfolio management by checking for rebalancing opportunities daily. Although some firms outsource their investment management services, we think it is vital to know each client and understand their individual needs. This knowledge helps us to take a personalized approach when rebalancing to keep each client on target.


How do we do it?


Every client we meet with has a target asset allocation based off their goals, time horizon and risk tolerance that breaks down the percentage of investments that they have in stocks vs. bonds. Within those stocks and bonds are many sub-asset classes. Our investment committee has assigned targets for these different asset classes based on the client’s goals and needs.


Each morning we receive notifications from our rebalancing software. These alerts let us know if anything is off target in all sub-asset classes of client portfolios by alerting us if portfolios have breached thresholds that we have in place.


For example, if your target is to have 10% in Large Cap Growth Stocks, we account for market fluctuation and have thresholds in place to ensure that you stay close to this goal. If your Large Cap Growth Stocks breach these thresholds, we receive a notification letting us know that you are either under 8% or over 12% in this area. Then, our advisors determine the best course of action based on your individual preferences and needs.


Using these systems, we are able to help you maintain a good balance by selling to capture areas where you have experienced significant growth and buying into areas that are underfunded.


* In certain circumstances this rebalancing approach is not suitable. In these cases, we work with clients to make sure the approach we use fits their needs.



The importance of being disciplined in volatile market 


Volatility can be a hard pill to swallow for any kind of investor. While tolerances for risk may vary from investor to investor, we all feel the ups and downs to some extent. Therefore, it is of the utmost importance to be disciplined and not fall victim to the rollercoaster of emotions that volatility may put you through.


But what does “disciplined” really mean during volatile market periods? It means that you, as an investor, avoid emotional decisions based on short-term sways in the market. Remember, trying to “time the market” is an extremely difficult thing to do because you must be correct twice: once to sell out of your holdings and another to get back into the market at a beneficial time. Either one of these alone are difficult as is. For this reason, historically speaking, it is better to hold steady with your plan. 


Let us look at a recent example, from last year in March of 2020 when the COVID-19 Virus sent a shockwave through the world. During the lowest point of the market downturn in March, the S&P 500 saw a drop of 34%. Flash forward to the end of the year, only 9 months later, and the S&P 500 rose 68%. (1)Now imagine the investor who gave into their emotions and sold out of their equities at that bottom in mid-March. Not only did they turn any unrealized gains or losses into realized ones . . . but they also missed out on all the bounce-back growth and compounding!  


All in all, having a financial plan for the long-term can go a long way to help stay disciplined. When you have written goals and objectives catered to your situation, it becomes easier to have an anchor point during turbulent times in the market! Having a financial planner also goes a long way in having someone you have a relationship with to keep you on track and talk you through any times of uncertainty. Remember, we are planning for the long-term here and are not going to be obsessive with short-term fluctuations! 



(click the title to the right to open the full brochure to read in its entirety: How to Handle Market Declines