Your portfolio: the opportunity is in the balance

CarolinaFireJournal - Cheryl Holland
Cheryl Holland
10/14/2011 -

The ups and downs of the economic rollercoaster we are currently riding have been extreme enough to make even the most seasoned investor a little breathless. Unfortunately, there is no magical safety belt that guarantees security. However, there is a proactive move that can make the most of the situation — and whatever the future might hold. It is called opportunistic rebalancing.


Traditionally, wealth managers have systematically rebalanced the investment portfolios under their watch on a quarterly or yearly basis to control the risk that can be caused by the shift of asset class values — i.e., stocks down, bonds up; real estate down, gold up, etc.

Perhaps you follow a similar rebalancing schedule with your own portfolio. If you do, it is a smart idea, and a good time to consider a more flexible and responsive approach.

Opportunistic rebalancing doesn’t necessarily mean you will rebalance your portfolio more frequently. Actually, the contrary is often the case. Rather, it is based on the premise — confirmed by studies — that you can better protect your money and grow your returns when you keep a constant eye on identifying the best opportunities for rebalancing — and taking action then and there. In other words, it is a rebalancing mindset shift from “regularly scheduled” to “when the time is right.”

What are some of the specific advantages you can expect from opportunistic rebalancing? Here are a few of the key examples.

It puts you in a heightened position to activate a basic fundamental of successful investing — capturing attractive buy-low/sell-high opportunities.

Consider the scenario of equities declining in value. You will be ready to act and buy more at the lower price. That door may be closed when your quarterly review rolls around. There is a lot of relative volatility among asset classes. Why not put this volatility to work for you?

It can keep your blood pressure in check. You know what your risk tolerance is. When your portfolio moves toward a risk level that pushes the alarm buttons, you can shift it back into your comfort zone with opportunistic rebalancing — instead of waiting and worrying until the next rebalancing on the calendar.

It helps minimize income taxes. For instance, opportunistic rebalancing allows you to optimize the harvesting of capital losses. You can net those losses against current or future capital gains or offset your other income up to $3,000 per year.

It is clearly an understatement to say we are living through unpredictable, at best, economic times. If you choose, you can sit back, close your eyes, and hope for the best. On the other hand, you can take a more active role in weathering — and perhaps even being rewarded by — the circumstances. If you opt for the latter, one suggestion is to put opportunistic rebalancing, and the pluses that come with it, on your “to do” list.

Cheryl R. Holland is President of Abacus Planning Group, Inc., a fee-only financial planning and investment counsel firm She is a columnist for the University of South Carolina’s Business and Economic Review and has been widely quoted in Forbes, Money, and other financial publications.
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