Jason Pride, chief investment officer of private clients at Glenmede, and Kevin Simpson, portfolio manager at Capital Wealth Planning, join "Squawk Box" to discuss the markets after the Nasdaq closed about 9,000 for the first time. Markets aren’t static, so you’ll need to rebalance periodically to make sure that your investments are not off course.
What does that mean? Let’s say you set up your portfolio as 60% allocated toward stocks and 40% allocated toward bonds, which is fairly typical. Stocks have outperformed recently, so with their returns, your portfolio might now sit at 75% stocks and 25% bonds. By rebalancing, you can sell off a bit of your stock gains and put more money elsewhere, like into bonds.
“We’ve really been pounding the table on rebalancing more frequently and taking advantage of these things,” says Liz Ann Sonders, Schwab’s chief investment strategist. Sonders cited the bear market that culminated last December and the big upturn that occurred thereafter, saying that investors who rebalanced may have been able to buy when the markets were down in December and sell at higher rates when it bounced back.
Most experts recommend rebalancing at least once a year, but another good rule of thumb is to look at your asset allocations. If they’re off by more than 5% to 10%, then it’s likely time to rebalance. If you’re invested in a managed account, your financial institution or advisor will typically take care of rebalancing your portfolio for you. The same is true if you’re invested in a target date fund in your retirement account.
The best part about rebalancing: Your portfolio tells you when it’s time to do something. You don’t have to rely on an expert on TV to make the right short-term market call, Sonders says. “If an asset class has had underperformance, it’s now shrunk as a weight in your portfolio and that forces us to do what we know we’re supposed to do: buy low, sell high,” she says.
“That’s about as close a thing to a free lunch as you get,” Sonders says. Especially with all these macro uncertainties hovering, many of which are so unique — the geopolitical climate, the international trade issues. Investors should stay close to their benchmark asset allocations and be prepared to rebalance if their portfolio gets out of whack.
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