Finding the courage to rebalance
From: financial-planning.com
Rebalancing client portfolios is a strategy most advisers embrace wholeheartedly. Yet sometimes even this seemingly obvious technique takes a measure of courage to implement.
Imagine this scenario: A client comes to the adviser’s office and expresses unhappiness with the funds in her portfolio that have not performed well. The adviser suggests that a rebalancing be done.
“Great, what does that involve?” asks the client.
“Well,” says the adviser, “we take some money out of the funds that you have been happiest with [the ones that have performed well] and put that money into the funds that you are unhappy with. How does that sound?”
See where the courage may be needed?
Rebalancing the various components of a portfolio does not improve performance 100% of the time. However, it does improve the outcome often enough that it’s worth teaching your clients the ins and outs of this investment technique.
TEACHING CLIENTS ABOUT REBALANCING
While most planners understand the value of portfolio rebalancing, it’s not something clients are always savvy about. One way to describe the strategy to clients might go something like this: Rebalancing a portfolio keeps the various ingredients at their assigned allocations as the years go by.
Rebalancing may seem counterintuitive, but it’s exactly how we achieve the basic mantra of investing, which is to buy low and sell high — only the order is reversed: You sell high and buy low in the process of rebalancing.
