It’s Time To Do Your Annual Rebalancing.

Yes. Investing is a chess game. Natalie Pace in Ireland. Photo by Marie Commiskey, Avalon Photography. All rights reserved. (c) 2012.

I recently spoke with someone about rebalancing, and her response was, “I don’t want to day trade.” Annual balancing is not day trading. In fact, it is the most important thing that you can to preserve, protect and grow your nest egg. And here’s why.

1. Annual Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot for Your Nest Egg.
2. This Alone Would Have Protected You From the Devastating Losses of the Great Recession and the Dot Com Recession. You can’t afford to lose more than half of your assets every 8-10 years.
3. What’s Hot and What Safe Change Every Year.
4. You Age a Year Every Year.
5. Your Action Plan Is Obvious Once You Are Properly Diversified.
6. Stick to Your Knitting.
   
   

And here’s additional information on each of these key points.

1. Annual Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot for Your Nest Egg.
Annual rebalancing is not daytrading. It is a simple strategy for always being sure that you have enough safe and are properly diversified. The added benefit of annual rebalancing is that it forces you to do what you should be doing, i.e. trimming back when your assets have had a great run (selling high) and buying more when asset prices go down (buying low). The truth is that buying low and selling high is easy to say and hard to do? Why? Because it is completely against human nature. Also, when you ride the Wall Street rollercoaster up and down, you simply don’t have any money to buy low with. You have suffered so many losses that the only thing you can do is recover. (This happens in real estate, too.)

2. This Alone Would Have Protected You From the Devastating Losses of the Great Recession and the Dot Com Recession.
You can’t afford to lose more than half of your assets every 8-10 years. Annual rebalancing ensures this doesn’t happen to you. Let’s say that you had a spectacular year in 2007. If you use the old-fashioned Buy and Hope plan, then you would have lost 55% in the Great Recession. The losses were even more catastrophic in the Dot Com Recession, when NASDAQ lost 78% of its value (and took 15 years to come back to even).

During the Great Recession, the Dow Jones Industrial Average lost 55%.

During the Dot Com Recession (2000-2002), the NASDAQ Composite Index lost 78%.

Annual rebalancing would have ensured that you kept enough safe during both of those downturns. Those people who overweighted safe earned gains in the last two recessions and outperformed the bull markets in between. (On December 24, 2007, I posted a blog encouraging people to overweight up to 20% safe. I am encouraging extra protection again now.)

3. What’s Hot and What’s Safe Change Every Year.
Getting Hot: In 2007, clean energy was the top performing industry, earning 62% gains. In 2008, it was the worst performer. NASDAQ doubled the Dow in the wake of the Great Recession, so adding an extra slice of technology really spiced up the performance of your portfolio.
Getting Safe: In normal times, bonds are an easy way to get safe. However, with so much leverage in the world, bonds are quite vulnerable. Over half of the investment grade bonds are just one downgrade away from junk status. Many bond funds have 20% or more of junk bonds in them. Bonds lost money in 2018 and are vulnerable in the near future. In 2019 (and beyond), it’s very important to educate yourself on how to win in an over-leveraged world where most assets are in a bubble: stocks, bonds and real estate.

4. You Age a Year Every Year.
The basic rule of investing is to always keep a percentage equal to your age safe, and to diversify your “at-risk” investments. See the sample pie charts below.

Sample nest egg pie chart. (c) 2019 Natalie Pace. All rights reserved.

Sample nest egg pie chart. (c) 2019 Natalie Pace. All rights reserved.

5. Your Action Plan Is Obvious Once You Are Properly Diversified.
Most people are not properly diversified. Even if you have pages and pages of holdings, you might just have large cap growth and value over and over again. I’ve been doing a lot of second opinions this year, and not one person was properly diversified or had enough safe. Once you trim back all of that nonsense into a sensible, easy plan with ten diversified funds, then each year you simply: 

• Print out the pie chart of what you have,
• Personalize a new pie chart of what you should have (based upon your age, market conditions), and then,
• Make what you have look like what you should have (buying low and selling high)

 
6. Stick to Your Knitting.
This is an age-old adage in investing. If you have a time-proven plan (my easy-as-a-pie-chart nest egg strategy), then you stick to it, no matter what kind of noise you hear in the media. In 1999, you would have heard a lot of self-proclaimed experts claiming we were in a New Economy when Dot Coms didn’t have to make any money at all. In 2007, you were drowned in ads offering no down, Liar’s Loans and easy access to your home equity ATM machine (even though that would send over 10 million homes to auction in the coming years). Today, you’re hearing how great our economy is doing, despite the facts that:

• 2019 is predicted to slow to just 2.1% GDP growth.
• Homes are unaffordable in many U.S. cities,
• Debt is absolutely astronomical,
• Millennials have to delay their home purchase by an average of 7 years,
• Most American households have less than $5000 saved for retirement and are drowning in debt.
  
  

So, now, when the markets are back to all-time highs, before the 2nd quarter 2019 GDP report on July 26, 2019 (which is predicted to reflect slower growth), is a great time to rebalance your nest egg (your 401K, IRA, Health Savings Account, etc.). The slices that have gotten really fat and have earned a lot of games are going to need to be trimmed back to their appropriate size. That’s called selling high. The slices that have gotten super thin because they’ve been underperforming need to be beefed up to the appropriate size. That’s called buying low.

Of course, all of this requires you actually knowing what you own, which is why I began offering 2nd opinions. Call 310-430-2397 to learn more.

Additional Tips About What’s Hot and What’s Safe

1. Bonds are vulnerable.
2. Money market funds have redemption gates and liquidity fees.
3. CDs often have an opportunity cost. Some are not FDIC insured.
4. Getting safe is a two-step process. First you must keep your money, so be sure that your cash is in an FDIC insured account. Then you want to think about safe income producing hard assets that you purchase for a good price.
5. Most hard assets are not a good price right now.
6. However things like solar panels and other energy efficiency upgrades – including perhaps a solar water heater, solar tubes, a gray water system or better insulation in your home, that dramatically reduce your utility bill – could be a great investment right now. The energy efficiency tax credits are set to start expiring at the end of 2019. So that’s low hanging fruit for you.
7. If you start researching now into what safe, income-producing hard asset is right for you, and understand how to do the math and make sure that it is a viable business without taking on a second or third job, then when real estate prices become affordable again, it will be a good time for you to make your move. As they say, when preparedness meets opportunity therein lies success. 
   
8. If you are going to add cannabis as a hot, you will need to select individual companies. The industry is too new to find a reputable fund.  Also, these companies are very volatile, so you’ll have to adopt a strategy of taking your profits early and often (rather than just annually rebalancing them). I added cannabis as a hot slice in October and by March the companies I highlighted had doubled. They then pulled back again. Some, like Tilray and Aphria, are trading near their 52-week lows. Not all cannabis companies are created equal (some are pump-and-dump schemes), so be sure to read my cannabis blogs.
9. Having four hot slices in your nest egg pie chart adds a lot of performance. Many times my hot slices have doubled within one or two years. Again, this is not day trading. It’s maximizing performance.
   
10. If you’re going to buy solar or any other hot asset, then you need to know how to rebalance after you make that hard asset acquisition. Hard assets are not included in your nest egg pie chart, but they are part of your wealth and assets. This is something that we spend a full day on at the Investor Education Retreats. Call 310-430-2397 to learn more. 
     
    
    

 

If you'd like to learn time-proven strategies that earned gains in the last two recessions and have outperformed the bull markets in between, join me at my Wild West Investor Educational Retreat this Oct. 19-21, 2019. Click on the flyer link below for additional information, including the 15+ things you'll learn and VIP testimonials. Call 310-430-2397 to learn more. Register by June 30, 2019 to receive the lowest price and a complimentary 50-minute private prosperity coaching session (value $300). 

I'm also offering an unbiased 2nd opinion on your current retirement plan. Call 310.430.2397 for pricing and information. ​

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.