The Great News
Since the low on March 23, 2020, when the markets dropped 38.4% from their February 19, 2020 highs, we’ve seen an extraordinary rebound in U.S. equities. If you sold everything, you might be ruing the day. This is an example why market timing doesn’t work. If you trimmed back in February and protected your money, then you might find that some slices have plumped up quite nicely for you. That’s a sign that now might be a great time to do another rebalancing.
Market Timing Doesn’t Work
Market timing doesn’t work because you’ll always be too early getting out and too late getting back in. What does work? Proper diversification, keeping enough safe, knowing what is safe in a world where bonds and money markets are vulnerable.
Another reason that market timing doesn’t work is that it is a plan that relies too much on your emotions. If you jumped out in March out of fear, you’ll be tempted to jump back in now out of FOMO (Fear of Missing Out). A properly diversified plan keeps an appropriate amount at risk, with exposure to different types of funds, so that you can always benefit from rallies, and always protect yourself from routs.
Sell in May and Go Away?
Sell in May and go away is an age-old Wall Street aphorism. It came about because summer is typically low volume and can be weak. September is often the worst performing month. Over the 10-year period, May has averaged losses of -1.23%. The losses tend to be more pronounced when there has been a rally in the months leading up to May.
April 2020 was one for the history books, with returns of 12.68%! This was the best performance since January of 1987, which posted returns of 13.18% gains. However, the rally doesn’t make up for the losses of February and March.
The Dow Jones Industrial Average closed at 24,597 today (May 18, 2020). That is still 17% lower than the high of 29,569 set on February 19, 2020. However, it is a strong enough rally that you might be seeing some of your slices looking nice and plump, and ripe for the taking.
Rebalancing is a Buy Low, Sell High Plan on Auto-Pilot
When you are rebalancing 1-3 times a year, each time has a slightly different strategy. Selling now could be an exercise of trimming back and capturing gains. If summer and September post losses, then you might be buying low in the Back to School Stock Sales, in hopes of a Santa Rally.
The most important thing to do when rebalancing is to mock up what you have into my pie chart strategy – putting all of your large growth in one slice, all of your large value into another slice, and the same for any mid caps, small caps and hot industries or countries. Doing this makes it very easy to see what you have. When you compare what you have to a sample, personalized pie chart of what a properly diversified plan looks like, all that you have to do is to trim back the plump slices (sell high) and beef up the thin slices (buy low). You can create your own personalized pie chart using my free web app. There is a badge on the home page of NataliePace.com that guides you through the process.
Annual (or 1-3 times a year) rebalancing is a buy low, sell high plan on auto-pilot. Using the pie chart system takes the emotions out of it. When you work off of the holdings statement, then you are activating emotions that are going to be harmful to your fiscal health. Red lights signal you to stop or warn you that you have losses, prompting you to want to sell low. Green lights signal, “Go, Go, Go!” spurring you to put your foot on the gas and perhaps buy more (high).
Rebalancing in May
Before are 5 tips to preserve your wealth, while keeping the appropriate amount at risk (for potential gain). Most of the time when you are rebalancing in May, it will be after a Spring Rally. That means that it is potentially a great time to take your profits.
5 Rebalancing Tips
1. Mock up a pie chart of what you have.
2. Personalize a pie chart of what you should have.
3. Make what you have look like what you should have.
4. Don’t assume that anyone else is doing this for you. Get a 2nd opinion if you don’t know what you own, or if you aren’t sure how to mock up what you have into a pie chart.
5. Learn what’s safe in a world where bonds are losing money and are illiquid, and where money market funds have redemption gates and liquidity fees.
Receive an Unbiased 2nd Opinion on Your Current Plan
FYI: I’ve been doing 2nd opinions for a few years now. I have yet to find one plan, whether it is self-directed or managed by a professional, that is properly diversified. If you would like an unbiased 2nd opinion (I don’t sell financial products), then call 310-430-2397 or email info@NataliePace.com.
Crystal Ball 2020?
What lies ahead? That will be addressed in an upcoming blog and videoconference. Email info@NataliePace.com with VIDEOCON in the subject line to be sure that you receive notice. This Thursday at 4:00 pm ET, I’ll be hosting the senior index analyst of S&P Dow Jones Indices – Howard Silverblatt in a special video conference. Learn what data and history tell us about today, and our best strategy moving forward.
If you are interested in learning what's safe in a world where stocks, bonds and money market funds are all vulnerable to capital loss, consider joining me for my next Financial Empowerment Retreat, June 13-15, 2020. Get additional information by clicking on the banner ad below.
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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.
Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She blogs on Huffington Post and Medium, and is a frequent guest contributor to national news shows and magazines. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.