Why Rebalancing may be more important more than ever
As mentioned below, the 7 Twelve info is shown as a colorful picture of one way diversification might look. I am generically recommending diversification as a sound investment principle. I am not recommending 7 Twelve specifically or any other specific investment diversification.
Diversification is Easy! (Until it isn't!) ☹
So why isn't diversification easy? If you're the kind of person who worries, it is your money. Your nest egg. Your future or current retirement. You don't want to lose all or part of it. And sometimes worry might lead us to do things we later regret or otherwise understand to be not in our own best interests.
Here's another reason. It can be seen (incorrectly) as too easy. Mechanical. The info about 7Twelve is NOT a recommendation. It is simply one of many approaches. So what's the big deal. It is like a cookbook - a recipe. Find all the ingredients. Put them into the recipe in the right amount. Since this is investing not cooking rebalance periodically to the desired allocations percentages. Retire when you meet your goal. What's wrong with that?
Well, when one part is going through the roof, the all too human psychology is to want more of that. So the temptation is to buy more. Equally or even more difficult, if something else is just in the tank, on the bottom etc., then rebalancing requires you to buy more. But it's not doing well! So you'd rather own less of it, not more.
Diversification means everything you own is not all going up at the same time
This is a definition. Correlation is the fancy word. Let's remember investment involves math but investing, unlike medicine or sending up a rocket, is not science. Correlations can change. If everything has gone up all at the same time, then it can all drop at the same time and cause not just emotional pain but potential life disruption.
Take Some Profit Now
How much? See below for some ideas
Sell enough of your big winners to equal what you originally paid for them
Maybe let profits ride. Maybe let 50% of profits ride. Take 50% of your profits off the table.
Sell enough of your big winners to 100% fund your retirement nest egg requirement
Do the math. If you could stop, cash out 100% and be able financially to retire immediately .... that is a big consideration. People work for many reasons and I do write about retirement but this is not saying that you "should" retire. But if you could retire financially by cashing out your paper profits, that's worthy of some meaningful thought, consideration and conversation with Loved Ones.
Rebalancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
The views stated in this material are not necessarily the opinion of Cetera Advisors LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.