Driving Your Wealth
/Long-term investing is a lot like taking a cross-country road trip. Along the way, you’re going to have to fill up your tank a few times, may hit some bumps in the road, and you might need to take a few detours. However, if you’re following directions and sticking to your plan, you’re eventually going to get to your destination. The most common destination with long-term investing is retirement.
In the past 12-month time period, we have seen very strong stock market returns. In fact, for the month ending October 31, 2021, the S&P 500 Index has returned nearly 43% in just a one-year time period. When stock market returns are higher than normal, they tend to push portfolios out of balance, which means your investment portfolio may be taking on more risk than what you anticipate or should be taking. This is sort of like what happens when you look down to see you are driving well over the speed limit without meaning to do so. To ease the risk while driving, you would just pull your foot off the gas pedal or use your brakes to slow down. In an investment portfolio, you can remedy the risk by rebalancing your investments. This is typically accomplished by taking profits from your stocks and using those profits to buy bonds or cash alternatives. The same process should occur when stocks are down, and your bond exposure is higher than it should be. You can sell bonds at that time and use the money to buy stocks while they are at lower prices.
Just as you would regularly check your speed and adjust as needed on a road trip, you should regularly check the risk in your investment portfolio and rebalance at least on an annual basis. For clients who have their investments managed by us, we take care of this rebalancing on an annual schedule. If you are managing your own investment portfolio and haven’t checked on your risk in quite some time, you should take a look to see if there are any changes that need to be made and let your planner know if you need some help with investment recommendations. No matter your long-range destination with your investments, if you haven’t rebalanced in the past 12 months, now is a great time to check your risk and make sure you’re still on the right path.
- Margaret Gooley, CFP®, CDFA®, Worley Erhart-Graves Financial Advisors
