A (re)balancing act

Emotion often plays a role in investing — and some advisors suggest that the best way to take it out of the equation is to “set” the portfolio at the beginning of the year and leave it alone. But uneven growth rates in asset classes and extreme market volatility, such as the disruption caused by the Chinese market and oil prices in 2015, can have a major impact on your portfolio. In other words, you may be taking on a lot more asset risk than you expected.     

A portfolio that starts off properly allocated can be negatively or positively impacted in many ways; but if it is properly monitored and periodically balanced, your portfolio can better align with your objectives and risk profile. Rebalancing can benefit your portfolio by reducing over-weighted positions (selling high) and increasing under-weighted positions (buying low). This may help avoid emotional decision making that can be harmful to your investment strategy. Also, from disruption often comes opportunity; and the “hands-off” approach may miss out on opportunities to buy impacted investments that are currently undervalued. Evidence supports the value of rebalancing; historically, portfolios that have been rebalanced periodically have outperformed a “set it and forget it” strategy — and portfolios that prudently manage taxes during these trades do even better. 

Deciding when to rebalance can be a complex decision. Rebalancing too often can incur taxable gains and costs that eat away at returns. On the other hand, rebalancing too infrequently may cause the positive effects of rebalancing to be insignificant. KF Advisors’s portfolio managers combine their thinking with information from sophisticated tools and technology to carefully monitor and manage each client’s portfolio. We welcome discussion on how we work to keep your portfolios on track to reach your goals. 


The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personal investment advice. KF Advisors is neither a law firm nor accounting firm, and no portion of its services should be construed as legal or accounting advice. If you are a KF Advisors client, please remember that it remains your responsibility to advise KF Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request or by clicking here. Please read the expanded disclosures in the linked report.