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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

  • Writer's pictureSummit Puri

Asset Allocation Strategies -The Perfect Melody of Style, Strategy, Monitoring and Rebalancing

Recap

Last week, we dove into defining the difference between asset location and asset allocation. As a quick refresher, asset location focuses on the ‘where’ question of your investments. Where should I invest my money to align with my goals in a tax-efficient plan? On the other hand, asset allocation is the selection of the securities, assets, or “beanie-baby” investments in your portfolio. The allocation component focuses on the ‘what’ aspect of your investments.  If you’d like a bit more than a refresher, here is the link to the article from last week, Asset Location vs Asset Allocation (whitakerwealth.com).

 

To rebalance or not to rebalance, that is today’s question

In a previously written article, our Whitaker-Myers Wealth Managers (WMWM) team discusses the importance of rebalancing.

 

Rebalancing an investor’s portfolio is an excellent strategic decision that keeps their account within the appropriate allocation percentages. For example, imagine that you’ve created a portfolio with the intent to reach a specified goal with 70% in equities and 30% in bonds/fixed income. However, when you log in this morning, you notice 50% in equities and 50% in bonds. Well, that is a pretty significant deviation from the goal allocations. In this scenario, timing-dependent, you may consider rebalancing the portfolio to stay within your goal and allocation requirements. Our team at Whitaker-Myers Wealth Managers pays close attention to tolerance levels and has the tools at our disposal to manage any rebalancing procedures as necessary and efficiently.

 

To rebalance or not to rebalance doesn’t seem like much of a question anymore, does it? However, depending on the account type you or your advisor have selected, you may not want to rebalance. Let’s keep swimming into the deeper ends of this ocean of knowledge.

 

Types of Allocation Accounts


Buy and Hold

This account is self-explanatory. In a buy-and-hold account, the investor never rebalances. The investor buys a security and holds it. Earlier this week, a colleague shared with us that if we invested in NIVIDA 10 years ago for $1000, that same account would be >$300,000 today with no additional investment. Hindsight is 20/20, and the reality is that most of us would have sold before hitting the 300k mark.  Key takeaway: Buy-and-hold investors do not rebalance; they buy and then hold until sold. “Hold until sold” – the next hit song on the WMWM album.

 

Tactical Asset Allocation (TAA)

Some may consider the buy-and-hold strategy part of the tactical asset allocation umbrella, but I believe they are quite different. The key distinction is that tactical asset allocation will not be the hit track on the WMWM album. 

 

All jokes aside, the TAA portfolio differs from the buy-and-hold portfolio by selling securities more regularly and thus ‘rebalancing’ without traditional allocation percentages.

 

Some of the key benefits of the TAA are:

  • More active investment approach

  • Buying and selling securities (many times individual stocks) based on market trends/analysis/gut feeling

  • Allows investors to make ‘tactical,’ short-term decisions

  • Much more flexibility and risk management (debatable)

  • Strategic short-term changes based on micro and macroeconomic influences (we’ll have a very detailed post about this in the future)

 

For those who prefer individual stocks, this is a great investment style to consider. However, the disadvantages are important to consider as well: tax liability, increased risk with single stock exposure, diversification risk, and individual security risk (based on security type).

 

Strategic Asset Allocation (SAA)

This strategy is the strategy most investors are familiar with. Your 401k and other retirement accounts are likely invested using the strategic asset allocation strategy or something very similar.

 

This strategy defines allocation percentages to the asset classes in which the investor wants to invest. As shared in the earlier example, a 70% equity and 30% bond/fixed income portfolio is a type of SAA portfolio. This portfolio rebalances based on the investor/advisor's discretion; however, rebalancing this type of account is more commonly dependent on tolerance/ranges determined by the account managers (individual or organization investment committee).

 

Benefits of the SAA style include:

  • Period-based rebalancing to stay aligned with goals and projections

  • Diversification benefits, based on low correlation and multi-asset class allocations

  • Most common type of long-term investment, short-term benefits are present as well (allocation and time horizon dependent)

  • Can fit almost any investor profile based on their investment philosophies and goals

 

I believe there are very few disadvantages. However, when analyzing returns specifically, this strategy works best with a long-term horizon.

 

Other types of accounts include Dynamic Asset Allocation, Core and satellite, and absolute return allocations.  We’ll spend some time exploring these next week as we continue our exploration.

 

To summarize

The account type you select, what is within the account, the strategy you deploy, AND who manages your account all need to align to get you to your goals. A savvy investor may be able to do 3 out of 4, but it is difficult to reach the end goal without the skills and knowledge of the experts. Our team of Financial Advisors at Whitaker-Myers Wealth Managers have the expertise you need to succeed, and we always come with the heart of a teacher to guide you to success. Schedule some time with one of our advisors or coaches today!

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Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.

Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

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