“It’s Always a Good Day to Have the Right Asset Allocation”

Jim says this a lot.  We just got a message from a client who was panicking over the recent volatility in the stock market.  Here’s his response:

I got your text.  We don’t see a good argument for major moves in your portfolio.  Our goal for each client is to establish a good long-term asset allocation that meets the client’s needs and ability to manage market risk.  We believe – and academic studies show – that strategy fosters long-term success while getting whipsawed by market conditions has proven extremely harmful to investors’ returns.

That long-term asset allocation was behind the portfolio we recommended for you just a few months ago.  We believe the only reason for making a change now is if that portfolio has gotten out of balance in the interim.  In particular, if stocks had substantially outperformed bonds over that short period, there might be an argument for rebalancing out of stocks and into bonds.

Stocks outperforming bonds isn’t what has happened.  While the stock market has increased slightly since the spring, declining interest rates mean that the bond index fund you own has matched that increase and the yields on your CD ladder are higher than the rates currently offered in the market.  Your taxable account should still be very close to the same mix as in the spring.  The target date funds in your IRA accounts rebalance automatically to their target mix, so there is no action needed for them.  Those funds will also continue to shift from stocks to bonds gradually over time as part of their design. 

Your 401(k) portfolio is all in stocks, but that is because of the poor quality of the bond offerings; the bond funds available all lost value in the 2008 stock market decline.  And that account comprises a small percentage of your investment assets, so its fluctuation won’t have an important effect on your net worth.

If there is a call to action in the markets, it would be… (client-specific advice)…

His advice of 18 months ago stands:  “The Stock Market Just Dropped 1100 Points. What Should I Do????”

Please call if you’re afraid *you* might not have the right asset allocation.  We start with a questionnaire and a discussion designed to assess your ability to handle risk in your portfolio – the “sleep at night” test.  Portfolio evaluations, including an investment policy statement to guide future decisions, a target asset allocation and specific investment recommendations start at $500.

Pricing is hourly based, so total fee is based on complexity.  We are fee-only fiduciaries, sell no products, do not collect commissions, and have no incentives other than your success.  Call 513-794-1829 or email jim@1taxfinancial.com.