facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast blog external search brokercheck brokercheck
%POST_TITLE% Thumbnail

Military Finances 201: Executing a Plan versus Reacting: Portfolio Rebalancing

Managing Your Finances

I once heard something to the effect of, "Nothing focuses you like a jab to the nose." Well, the effect of COVID-19 on the markets has definitely been a "jab to the nose." But what to do about your new found focus? You may be tempted to react. I think you'd be better off executing a plan. Let's face it, military operations throw a lot of unexpected challenges at you. And you do have to react to them, but you've probably thought through branches and sequels and are ready to execute a planned reaction to events.

The same it true when it comes to investments. Just like military operations, we have a plan for investments. We recommend that clients allocate to up to 12 different asset classes with a target percentage in each asset class. We put guardrails around those targets and those guardrails direct our reactions to events like the market losses caused by COVID-19.

Here is how it works. Let's say we decide that 10% of your portfolio should be allocated to US Large-Cap stocks. We'll put guardrails around it of plus or minus 2%. So if the Large-Cap stock position exceeds 12% of our portfolio, we'll get rid of some. If it goes below 8%, we'll look to move assets around to get more.

In a stock market crisis, we don't wonder, "What should we do?" We look at our targets and guardrails and say, "Our stock positions are under our limits, we need to increase them." We're reacting by executing a plan. And, executing a plan is always better than reacting based on fear or anxiety.

Beyond helping with our mental state, balancing to target keeps the portfolio risk level consistent with what was planned and actually forces us to buy low and sell high.

The things that make you an effective military officer, discipline and having a plan, will serve you well in managing investments in turbulent times.


If you found this article useful, you might like the following blog posts:

Military Finances 101: Using the OODA Loop to Get Your Finances in Order


Military Finances 101: An Investment Primer for Beginners


Military Finances 101: What is the Time Value of Money (TVM)?




Disclaimer
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.