Capitalism can be ugly but it has proved resilient. While clients many confront claims of its demise over the years, they may feel better if they note that mankind has yet to see a better system for creating wealth. Look around the planet and you will see that where there are pockets of prosperity, capitalism is usually the driver of the growth. At the height of the panic, when even the safety of money market funds and FDIC insured CD's were being questioned and profits were hard to find, companies did not stop seeking profits. Rather, they did what they always do. They adapted to the new information in an effort to create profits and increase their value.
When a portfolio is constructed, clients need to understand what they own and why. Especially during bad times for the markets, clients may need a reminder. Diversification within an asset class and amongst asset classes reduces the likelihood that the identity issues discussed above will be problematic. Thoughtful selection of the components of the portfolio should not only provide the ability to take advantage of the favorable mathematics of rebalancing, it may also help bolster the resolve to take the rebalancing actions retirement income plans assume will occur.
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Next month: Why rebalancing is not market timing.
Dan Moisand, CFP has been featured as one of the America's top independent financial advisors by most leading financial advisor publications. He has spoken to advisor groups on five continents on topics such as managing investments and navigating tax complexities for retirees, retirement readiness, and most topics relating to the development of the financial planning profession. He practices in Melbourne, FL. You can reach him at (321) 253-5400 or [email protected]