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Do You Have an Out-of-Whack Portfolio?

Research out of Investment Company Institute found that 11% of investors have not rebalanced their investments in the last five years.  As the US stock market continues its bull run, the value of US stocks represent a larger and larger portion of the portfolio.

All of a sudden, a portfolio that was balanced five years ago could be taking on more risk than you originally planned. Money Magazine states that a portfolio in 2009 invested 60% in stocks and 40% in bonds may have a current mix of 75% stocks and 25% bonds.  If you’ve not looked at your portfolio over the last few years. Now is a great time to get started.  Here is a summary of steps to take:

1)      Gather all of your statements – Investments accounts with us, accounts held elsewhere, 401(k) statements, etc. Tally up your overall asset allocation.

2)      Find what looks out of line – Does one mutual fund represent more than 25% of the portfolio? Does one stock represent more than 10% of the portfolio? Is one asset class accounting for a large portion of the portfolio?

3)      Look to rebalance – identify the appropriate asset allocation (primer found here).  You may also want to spend some time developing an asset location strategy, if we haven’t guided you already.

NU Fixed Account Rate Declines

NU Retirees: For over a year, the interest rate for the Fixed Account in the 401(k) plan at Fidelity has been declining.  The decline has continued into 2015 with the rate reducing from 2.25% to 2.0%.  As we have mentioned in the past, we now view the fixed account as a proxy for cash.

We’ve written a lot over the past year about how to view cash in your portfolio – posts can be viewed here.

Your Pot Of Cash Has A Hole In It.

You, like many Americans, may have a sizeable pot of cash just sitting in a bank account earning next to nothing.

The goal in keeping cash in a bank account is safety.

But what if I were to tell you that you that there was a hole in your pot and you are losing 2-3% each year and not even realizing it? You might think twice about keeping high levels of cash in the account.

In a sense, that’s what is happening. Every year, the cost of goods and services increases by 2-3% but the cash stays the same. This cash in your pot has ability to buy a little bit less than it did the year before and the year before that. This is the conception of inflation.

$50,000 today will buy more than $50,000 5-10 years from now.

One option to get around this harsh reality is to invest excess cash in a balanced diversified portfolio.

Why Waiting For The Right Time To Invest May Cost You In The End

At least once a week, a client will give me a reason why they don’t want to invest in the US stock market. They mention the headlines (which are designed to scare investors), and talk about the crisis-du-jour, or reference the looming economic dark clouds growing in the distance.

And so they sit in cash, with its perceived safety, waiting for the dust to settle, the clouds to clear, and the right time to invest.

But will it ever come… will it ever be so clear to the investor as to when they should invest?
Perhaps not.