Your Investments at HD Wealth Strategies in 2020:
Last Week Brought Rebalance #5 of the Year.
By: Allie Schmidt, Financial Advisor, CFP®, CPA
As many of you have probably seen, in the form of trade confirmations or even here on our blog, we have been rebalancing and fine-tuning portfolios throughout these very “exciting” first 6 months of 2020. In March we saw the market take a nose-dive, historically fast I might add, that was followed by an “only-up-from-here” April which proved to be the 2nd best month the market has ever seen. The fourth rebalance we did was March 18th when the S&P hit a negative 30% from the all-time highs set just 5 weeks earlier. When Steve and I had a virtual meeting to discuss the next rebalance, we were anything but excited. I remember saying, that we better get the models ready for another purchase at negative 40% likely within the week, if not the next day. That’s how fast things were moving (down) and how bad everything felt. But, we have a process that takes emotion out of the equation and now, 10 weeks later, I’m so glad we do! Little did we know during that conversation that it was, as they say, the darkest before the dawn, and the market turned on a dime and reversed course just a couple days later, setting the low on March 23rd at -34%. Having this process established made that final rebalance purchase of stocks across retirement accounts one of the best purchase opportunities of 2020.
Since the market moved so quickly in such a short period of time, we thought it was a great opportunity to illustrate our investment process and created the chart* below.
The chart shows the S&P500 year to date, the green arrows represent when we sold stocks and bought bonds (aka reduced risk) and the yellow arrows represent when we sold bonds and bought stocks (aka added risk). We talk about our investment process often and haven’t had many opportunities to really illustrate that process. Remember this is specific to retirement accounts. We also made changes and rebalances to non-retirement accounts; however, we don’t sweep through quite as readily because we need to respect the taxable nature of these accounts to ensure they remain as tax-efficient as possible.
*S&P 500 data obtained from ycharts.com
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
