Don’t look now…

Periodically, reviewing your investments makes sense.  When markets contract it’s easy to ignore and not log in and review your holdings.  Now may be a good time to refresh yourself on what you own, why you own it, to ensure your investments are serving the purpose you gave them.

When company values are expanding and the market is going up (think 2021), it’s nice to see larger digits on the screen in your account.  However, what goes up must sporadically come back down, last year was a humbling reminder markets are cyclical.  Don’t look now, but America’s best companies are expanding again.  Why is that?

Markets move through phases of growth and contraction based on numerous factors.  It’s difficult to determine “the” reason as there are multiple considerations.   The only way for investors to take part in the growth is to sit still when markets routinely contract.  That’s been a difficult ask since January 2022 with fears of a recession, rising interest rates, and company values continuing to shrink.

Headlines continue to proclaim it’s different this time, however it never is.  With all the negativity and large bets against the market last year and through the first quarter of this year, it’s not surprising to see company values increasing.  Will it last, who knows?  And that misses the point.

The point today is addressing a common obstacle all investors face.  Specifically, setting time aside to check in on what you own.  I’m guessing here, but experience tells me with last year’s suppressed values and a pessimistic start to this year, many investors have put off a review.  It’s natural to ignore what you own if it’s not urgent.  It can be depressing to watch an account move backwards so it’s easy to tune out.  Ongoing planning can soothe the soreness of ups and downs, so can assigning a job description to each account.  Many investors are busy going about their day, with limited time, it’s easy to defer.

This is a challenge that can be overcome, how?  I’m a fan of automation, both in my personal accounts and those we manage for our clients.  Automatically rebalancing investments back to their intended percentages once a year makes an enormous difference in investment outcomes overtime.  What time of year you rebalance isn’t nearly as important as doing it systematically.  Some retirement plans offer quarterly or semiannual rebalancing, this to me has always looked a lot like market timing.  The market cannot be successfully timed by anyone.  I believe once a year is sufficient to readjust your investments back to where they started.  The key is picking a date and sticking with it or electing automation to do it for you.

America’s best companies, referring to the S&P 500 index, is one color on the investment canvas.  Other colors should include US small and medium sized companies, along with international companies of all sizes.  It may be tempting to lean heavily on just US companies but that misses the mark on expansion and development taking place around the globe.  Some companies, industries, and geographies are killing it now, others not so much.  Rebalancing ignores the noise of what’s hot or not and follows a process.

This process resets each investment back to their original percentages.  This can be done with stocks, bonds, mutual funds, or exchange traded funds (ETFs).  ETFs allow you to own all companies in desired percentages and make rebalancing an easier task.  It takes the stress out of picking individual company stocks and allows you to distribute your time to better endeavors.  These may include reviewing cash flows, cash reserves, planning for fun, and spending the rest as you want.  Knowing what percentages of companies to hold is figured out by the role each investment account plays in your financial plan.

Another benefit to reviewing your investments is to check in on your contributions.  Can they be increased; do they need to be?  There are five months left in the calendar year, employer retirement plans cap employee contributions at $22,500 this year.  If you turn 50 or older this year, you may add catch up contributions of another $7,500 into your account.  529 education and after-tax investment accounts don’t have the above limits, so you may invest as much or as little as you want.

Knowing how much to invest, what to hold in cash reserves, and preparing for big ticket expenses is made possible by reviewing your investments.  Investing in companies takes faith and a belief in tomorrow.  Your temperament will be tested overtime as you part with cash, invest, and annually rebalance your accounts.

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