That Was The Week That Was-4th Week July

 

REBALANCING INVESTMENT PORTFOLIOS

 

 

 It’s like you’re rotating car tires or flipping a mattress, you are not exactly sure why you’re spending the time and money doing it but you’re doing it because someone said you should. Rebalancing of investment portfolios has been a ‘must-do’ for several decades. It is stressed so strongly by so many financial/investment business that if you do not rebalance on a ‘regular’ basis your entire investment, according to some experts, is susceptible to increased risk and worse possible portfolio meltdown.  Rebalancing is simply to keep your investments within their ‘original’ investment design or risk parameter. The concept has been lifted to one of the premier commandments of investment management. Almost every investment firm and product has some set rebalancing program. If you own a 401k plan there is probably a choice for you to check to ‘rebalance’ once a year or quarterly. If you own funds at a mutual fund company they may offer ‘rebalancing’ as one of their non-qualified services. Unfortunately some of the biggest individual investors are not fans of rebalancing or of asset allocation. For the average investor in order to rebalance they would need to sell their winners and buy more of their losers. Two things may happen: (1) Increased cost of the trade (2) Possible taxable event if rebalancing was done in a non-qualified portfolio. The other bad thing that could happen is that the losing asset could continue to lose for another quarter or year, exacerbating the portfolio losses. Following the rules you’d be pouring more money in year after year.

A simple way to rebalance without all the buying and selling is to simply check the overall risk of your investment portfolio and see if it is in the neighborhood of your original risk number. You keep track of your combined investment portfolio risk/volatility number, or Beta. Assume you want to keep risk at market and so the Beta would be 1.00. A check of your holdings, once a year or quarterly, and see how they may have changed is all you need to do. As long as the ‘average’ Beta is at or close to market risk you do not need to do anything. If, however, the entire portfolio risk has increased substantially you may want to sell some of your higher risk (Beta) investments and buy more of your lower Beta funds. The investments you buy and sell may be winners or losers. It doesn’t matter because you are concerned with volatility and not keeping individual investments in specific percentages. If one investment increases risk by 20% and another decreases by 20% it all evens out. You can find the Beta of all investments online at Google finance or Yahoo finance. plus other sites including Morningstar.com. Call me for more information regarding your specific situation.

IRS & Treasury Say Nyet on Firms That Force Retirees to Take Lump Sum or Insurance Company Annuity Income After Getting Pension Income. We in Detroit saw this recently as retirees receiving income checks for years, some for decades, were forced to chose either a lump sum or insurance annuity income pension. No longer says IRS & Treasury. That doesn’t mean that companies that have the language cannot do it. For most retirees it’s not to their advantage because of new fees – expenses and possible loss of spousal benefit. Thinkadvisor.com 7/13

 

Made me smile… 

New Yorker

 

 

The difference between me and a rocket scientist: They can take a rocket the size of a piano and send it 3,000,000,000 miles into space and hit a specific spot in the universe and I can’t send a golf ball straight for 200 yards.

 

ARE YOU A TRADER OR LONG-TERM INVESTOR? Jamie Dimon, CEO, JP Morgan, said not to worry about Greece or China or anything we’ve seen in 2015 because they won’t really change the investing world much. What Dimon understands is that there is no real link between specific disastrous events and the performance of the stock market. The Greece economy, measured by GDP per capita, is comparable to that of the state of Mississippi. MARKETWATCH.COM 7/16/2015

 

Hi- Yo. Gold! And Away! Both a commodity and a currency gold has taken on hard times. The yellow metal has fallen approximately 39% off its highs back from August, 2011.Jason Zweig, in the WSJ’s Intelligent Investor, wrote that unlike other financial assets gold generates no income. Therefore valuing it is virtually impossible.The following chart shows how far the metal has fallen in recent times. Zweig answers the question how much gold one should own? Based on the total value of all the world’s financial assets at the end of 2014: $102.7 trillion. The World Gold Council estimates the total quantity of gold was about $1.4 trillion. As an investor you would allocate 1.3% to gold. Anything more is ‘a leap in the dark’. WSJ 7/18/2015 Intelligent Investor

 

 Gold Still The Non-Story Story as Technical Analyst Michael Kahn at Barron’s ‘Getting Technical’ Calls Gold ‘A Falling Knife’.   The Trend is Down. Chart Published 7/20/2015 Barrons.com

The Reasons For Gold Major Meltdown? Myra P. Saefong at MarketWatch.com 7/20/2015:

• Reduced Demand for Defensive Havens.
• Reduced Need for Inflation Hedges.
• U.S. Interest Rate Liftoff and U.S. Dollar Rally.
• China forex reserves and percentage has not grown in 6 years.

 

Major Things Are Happening in Corporate America.

From Share Buy-Backs to M&A and Strategic Break-Ups Instigated By Activist Investors There are Things Afoot in the Corporate World Investors Should Be Aware Of. There have been stock splits and spin-offs. Some may be of benefit to investors for the long-haul and others be avoided. But be aware that opportunities are being created. Activist investors are not like the corporate raiders of old but initiating corporations to explore share buy backs, cost cutting, adding new blood to corporate boards, returning cash to investors or splitting off divisions to increase value. Sources Various from CNBC, WSJ.

It’s a ‘What Have You Done For Me Lately,’ kind of world. Stocks fell Tuesday, across the board, as  several large Blue chips reported lack luster, or downright ugly, earning numbers. Over the next two weeks about 60% of the companies in the S&P 500 will report and investors are carefully dissecting every number, nuance and phrase. As of July 21st about 12% of the companies have reported and 70% have beaten Wall Street’s already low expectations. The Washington Post 7/21/2015

Questions call Paul@ pstanley@westminsterfinancial.com Share this blog with someone who cares about their money.

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