Investment

Investment portfolios should be well-balanced

Published

4 years ago

October 18, 2020

As the markets seesaw up and down, the way your money is distributed among different types of investments and asset classes can change. Over time, these changes may increase or decrease the risk of your portfolio. As a result of these changes, it could be time to rebalance your portfolio.

What is rebalancing?

The purpose of rebalancing is to move a portfolio back to its original target allocation by following the first rule of investing: Buy low and sell high. Rebalancing is the process of selling a portion of your portfolios over weighted investments, and using the proceeds to buy more of your underweighted investments until the percentage of each asset is equal to the original portfolio.

Why rebalance?

Once you have built a well-diversified portfolio, you may need to rebalance it periodically to ensure that it continues to match your investment goals and objectives. Taking the time to rebalance your portfolio will ensure that your investment goals are still on track. If you don’t rebalance and one asset class in your portfolio becomes too large, you are, by default, changing your portfolio’s risk profile.

For example, let’s say you own two funds: Fund A and Fund B. You have a $100,000 portfolio and have selected an asset allocation such that each fund represents 50% ($50,000 each) of the total. The following year, Fund A gains 20% while Fund B loses 20%. Your portfolio’s value hasn’t changed and is still worth $100,000. However, the difference in the performance of the two funds causes the allocation of your portfolio to change from a 50-50 mix to 60-40. As a result, the portfolio now has different risk and return characteristics than its original allocation. To return to your desired 50-50 allocation, you would rebalance your portfolio by taking $10,000 from Fund A (sell high) and invest it into Fund B (buy low).

Most investors understand the concept and logic of rebalancing. However, the counterintuitive logic of rebalancing often leads investors to do the complete opposite. Emotionally, they want to buy more of the investments that have recently made the most money (buy high), and sell more of the investments that have lost and/or made the least amount of money (sell low). From a long-term, wealth-accumulation standpoint, this is exactly opposite of what investors should do.

Rebalancing accomplishes three important objectives:

1. Guarantees you will buy low and sell high.

2. Removes your emotions from the investing process.

3. Keeps your portfolio’s asset allocation in line with your risk profile

There can be tax consequences to rebalancing, depending on what type of account your money is invested in. Rebalancing (i.e., selling an investment) in a tax-deferred account, such as a 401(k) or an IRA, is not a taxable event. The only time you pay taxes in a tax-deferred account is when you withdraw money from the account. Unlike tax-deferred accounts, whenever you rebalance (sell) an investment that has appreciated in value in a taxable account, non-IRA or 401(k), you could owe taxes from capital gains

How often should you rebalance?

There are various theories about the best ways and time to rebalance. Just as there is not one perfect asset allocation, there is not one perfect rebalancing strategy.

At a minimum, rebalancing should be performed once per year. At Capital Wealth Management, we review each client’s portfolio every month to see if rebalancing is needed. Our investment policy dictates rebalancing when a client’s individual target asset allocation is out of balance by plus or minus 5%.

For instance, if a client’s portfolio has a target allocation of 60% stocks and 40% bonds, this method rebalances if stocks reach either 65% or 55%, and bonds make up 35% or 45% of the portfolio.

Rebalancing is an important part of long-term investing. Portfolio rebalancing can help reduce downside investment risk, and ensures that your investments are allocated in line with your financial plan. A year-end review with your financial adviser is an ideal time to review your portfolio’s allocation and rebalancing options.

Martin Krikorian, is president of Capital Wealth Management, a registered investment adviser at 9 Billerica Road, Chelmsford. He can be reached at 978-244-9254, www.capitalwealthmngt.com, or via email info@capitalwealthmngt.com.

Source:- Lowell Sun

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

Published

6 days ago

September 6, 2024

Anne Joseph

TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

Published

2 weeks ago

August 29, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Investment

Crypto Market Bloodbath Amid Broader Economic Concerns

Published

1 month ago

August 5, 2024

Harry Miller

The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.

The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.

Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.

The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.

Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.

Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.

Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.

Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.

The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.