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  • Writer's pictureMilo F. Hanke, CFP

2017 Q3 Quarterly Performance Report

We are pleased to enclose the Third Quarter reports which reflect the surprisingly good uptick we have recently seen in the markets.

As you know, this reporting is a new format and you may still be acquainting yourself with it. Please do not hesitate to contact us for a guided review of your portfolio performance report.

As the US bull market is now in its eighth year, foreign markets, laggards for most of the past decade, continue to show life. Some ask, how much longer can the uptrend last, what about the political landscape, etc.? Sometimes we think we know, but we really don’t. That’s why we rely on asset allocations that conform to the parameters of one’s financial situation, i.e., determining how much risk or volatility is acceptable. On the flip side of the coin, we sometimes speak of how much risk is necessary so retirees should receive adequate returns necessary for not outliving one’s money.

With asset allocation, we eschew market timing, the strategy of moving in and out of the markets based on predictions of near-term performance. Before this past presidential election, for instance, a few clients asked if they should liquidate their portfolios and go entirely into cash -- just to sit things out for a while. Their fears were real and reasonable but unrealized. Market timing doesn’t work, including market plays based on political events. To use a second example, Baby Boomers remember the horrific tragedy of the JFK assassination. The stock market did fall for a time but made a full recovery within six weeks.

While not market-timing, periodic rebalancing is a systematic means of trimming the winners (in recent years, that has been stocks) and feeding the laggards (likewise, lately bonds). According to numerous academic studies, this measurably reduces volatility and optimizes the overall return. Rebalancing incrementally moves money from pricier asset classes to less pricey ones. Only in retrospect can we see an advantage of this approach. Rebalancing represents “tweaking” of a diversified portfolio (long-term investors) versus the wholesale jumps in and out of the markets or market segments (“traders”).



If portfolio rebalancing has such a positive impact, why not do it as often as possible, say, every quarter; why not every month? The esteemed investment firm Vanguard published a technical paper on the subject: “Best Practices for Portfolio Rebalancing.” Crunching nine-decades of data, they concluded, “Annual rebalancing is likely to be preferred when taxes or substantial time/costs are involved.” The researchers compared hypothetical rates of return along with quantified volatility, all of which scientifically supports what has been our general practice. I often describe portfolio rebalancing as a process of “pruning”; Vanguard more precisely describes it as “recapturing the portfolio’s original risk-and-return characteristics.” (I enjoyed this “geeky” read, and am happy to forward the full ten-page report if you have a similar interest in such things.)

In addition to your portfolio, we welcome discussions about any other financial planning concern or opportunity.

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