Finance We Deliver! Wintering in Florida, Arizona or California? By Individual Driver Door to Door or Truck For more information about our services call: We pick up your vehicle from your doorstep and deliver it to your winter destination… and get it safely back home when you’re ready. www.torontodriveaway.com The Premier Driveaway Service in North America! I n t e g r I t y • h o n e s t y • c o u r t e s y 416-225-7754 Toronto Drive-Away Service Nationwide Inc. TrusTed since 1959 If it ain’t broke... First things first: let’s discuss the reasons why you might want to rebalance your portfolio. Because there are some who believe that there really isn’t a reason to. If an asset class is performing strongly and continues to make gains, then why would you want to sell and reallocate funds to those assets that aren’t doing well? Or, to use the more familiar phrase: if it ain’t broke, why fix it? It’s a sensible question, one that investors have been debating for a long time. The simplest way to answer it is that the more your portfolio gets out of whack with your original allocation, the more you’re abdicating the job of risk-reduction to the market. Essentially, you’re waiting for an overall market downturn (or a specific problem with a given company or investment) to do the rebalancing for you. A real-life example will make the point more clear. Let’s say that you had a 50%-50% stock-bond portfolio at the start of the current bull market rally in U.S. equities back in 2009. Because you’re a “hands-off” investor by nature, you decide to make no adjustments or additions to your portfolio throughout that time, and let your gains “ride” instead. At the end of eight years, your portfolio looks a lot different than it did at the start: it would now be approximately 75% stocks, and 25% bonds. Meanwhile, you’ve gotten eight years older. Think about the implications of that: you’ve gone from a balanced portfolio that was probably a perfect fit with your age to a muchmore aggressive, growth-oriented portfolio best suited to a younger investor with a long-time horizon. True, it didn’t happen all at once, and your portfolio has some good gains to show for it. But the fact remains that the risk profile of your portfolio has increased dramatically, while you’ve gotten older and your tolerance for risk has (if you’re like most investors) gone down. Make nomistake: if you’re an experienced, veteran investor, someone who watches market movements every day (and at multiple times throughout the day) and has a strong stomach for risk, then sure, you could make a lot of money by letting your winners “run” until exactly the right time. But let’s face it: most of us aren’t really built that way. We have neither the time nor the inclination to be constant market-watchers or day traders. Nor do we have the “intestinal fortitude” to constantly bet our retirement portfolios on the future direction of the stock market. Perhaps most important, we don’t have any crystal ball telling us when the “right” time to sell actually is. Rebalancing offers a simple, principled process for managing the risk that can “creep” into our portfolios slowly, without having to watch our portfolios full time. If reducing risk means that we have to miss out on those last few dollars that we could have enjoyed if we had sold at exactly the right time ‒ well, most of us are willing to make that trade-off. Particularly as we get older and less willing to take on some of the risks which we did when we were younger, we tend to value the quality of our sleep a little bit more. CSANews | FALL 2017 | 29
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