Keeping your portfolio balanced image

Keeping Your Portfolio in Balance

Published: October 12, 2017

“Life is like riding a bicycle.  To keep your balance, you must keep moving.”
Albert Einstein

Keeping Your Portfolio in Balance

Recently, you may have noticed some adjustments in your portfolio. This activity is an example of how we use the science and technology of investing along with our core investment beliefs to keep your portfolio in balance. Why? Your portfolio starts off with a recommended asset allocation that is implemented through carefully selected investment strategies. But over time, individual securities and asset classes experience differing rates of return and are also affected by market volatility. These factors can result in some asset classes being overweight versus your targeted asset allocation, while others may now be underweight. In other words, your financial exposures have shifted and you may be taking on a different amount of asset risk than you expected.

Klingenstein Fields Advisors (KF Advisors) believes that regular monitoring and periodically rebalancing your portfolio helps keep it aligned with your objectives and risk profile. Rebalancing your portfolio has two key benefits: 

  • Reduces overweight positions (selling high) and increases underweight positions (buying low)
  • Helps avoid emotional decision making that may negatively impact your investments 

 

Some may follow an approach of setting an asset allocation and leaving it alone. But this approach can result in excessive risk concentration and missing out on opportunities to buy undervalued investments that have been negatively impacted in market turmoil. Historically, portfolios that have been rebalanced regularly 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 is itself a balancing act. Rebalance too frequently, and taxes on gains and transaction costs can erode returns. But if you don’t rebalance enough, potential positive effects may be minimal. KF Advisors’ portfolio managers combine their thinking with information from sophisticated tools and technology to carefully monitor and manage each client’s portfolio. 

Important Disclosures

This material is provided for informational or educational purposes only and should not be construed as investment, accounting, tax or legal advice. Always consult a financial, tax and/or legal professional regarding your specific situation. This communication is not intended as a recommendation or as investment advice of any kind. It is not provided in a fiduciary capacity and may not be relied upon for or in connection with the making of investment decisions. Nothing herein constitutes or should be construed as an offering of advisory services or an offer to sell or a solicitation to buy any securities or a recommendation to invest in any specific investment strategy. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future returns. The views expressed herein are as of a particular point in time and are subject to change without notice. The information and opinions presented herein are general in nature and have been obtained from, or are based on, sources believed by Klingenstein Fields Advisors (“KF Advisors’) to be reliable, but KF Advisors makes no representation as to their accuracy or completeness. Although the information provided is carefully reviewed, KF Advisors cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided. KF Advisors represents two investment advisers registered with the Securities and Exchange Commission: Klingenstein, Fields & Co., L.P. and KF Group, LP. 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.