If you have a balanced asset allocation, over the course of a quarter (or a year) the percentage allocations will shift and your portfolio will need to be re-balanced back to the originally assigned allocations. What is important about this operation is that strong performing assets are sold (profits taken as they have become over-weight) and they are re-distributed to purchase under-performing assets (that have become under-weight and cheaper). As the cycle progresses, over-priced, out-performing assets will return to more realistic prices and the same for under-priced, under-performing assets.
The catalyst for this blog is from a meeting with new clients on Friday, disappointed with their buy and hold portfolio returns that had never (to his knowledge) been re-balanced (over a 4 year period). Full fees, limited client service.
Without this re-balancing process, a buy and hold portfolio will likely not provide better than benchmark (index) growth over longer periods of time: in other words why not just buy the benchmark index ETF and pay considerably less in fees.
If you have a buy and hold balanced portfolio and are getting non-discretionary financial advice, your advisor needs to call you (or you have to call him/her) to be able to enact a re-balancing (you have to give your permission for each trade). Needless to say, every client is not treated the same (from a timing perspective). Obviously the folks that we met with were not high on the list.
When you use a discretionary portfolio manager (see last Friday's blog for other differences:http://highrockcapital.ca/scotts-blog.html)
this is done automatically and simultaneously for all clients, so everyone is treated the same and fairly.
You can add this to all the other benefits of discretionary portfolio management, but remember, this is not investment "advice", this is active portfolio management (by experienced portfolio management professionals with CFA and / or CIM credentials).
At High Rock, we add in Wealth Forecasting by a Certified Financial Planning (CFP) professional, because every client has specific goals and objectives that are personal and their own. There is no cookie cutter, "one size fits all" strategy, because every family's circumstances are different.
If you really want to be looked after properly...
If you would like to receive this blog directly to your inbox...