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Staying the Course Doesn’t Mean Standing Still


The COVID-19 pandemic quickly turned into one of the biggest shocks to the global economic and health care systems in modern history.  In March as the spread of the virus brought the economy to a near stop, US Stocks slid more than 13% and had fallen close to 21% for the year1.  As short-term uncertainly increased, we stressed remaining disciplined to your investment strategy by looking past the headlines and recent market conditions to maintain a long-term perspective.  Remaining disciplined, or staying the course and sticking to your investment plan, may be difficult through market dips and swings, but it also doesn’t mean standing still.

If you think of investing as charting a course to a final destination and setting sail, there are a number of factors that will affect your journey outside of say the wind (market returns) and your route (asset allocation).  One of the most important ways we can impact your journey without changing course is by rebalancing your portfolio.  Rebalancing is an important way to control risks by maintaining the target asset allocation of the portfolio.  Without it, your portfolio’s risk profile could change substantially over time as stocks and bonds outperform each other.  When we rebalance, the weight of assets that have had higher returns is decreased in order to increase the weight of assets that have had lower returns.  Over long time periods, this function works to ensure that we continually buy lower and sell higher.  Given the sharp declines witnessed earlier this year, rebalancing in March would have had a noticeable impact on the performance of your portfolio so far this year.  It’s impossible to know exactly when the right time will be to rebalance, but we firmly believe having specific rebalancing thresholds that dictate when to buy into what’s relatively low and sell from what’s relatively high will benefit you in the long term.

When markets dip, it’s normal to struggle to separate your emotions from investing.  Our gut instinct is to change course to make ourselves feel better when markets or headlines stir anxiety.  Instead of trying to time the markets and position yourself for what may occur over the short-term, look to get a better understanding for how your expenses may change as a result.  If you believe you may need to make withdrawals from your portfolio, let that dictate a potential asset allocation change.  If you don’t expect to tap into your portfolio, use the recent market volatility as an opportunity to reflect on your risk tolerance.  It’s a lot easier to be okay with hypothetical declines, but something else altogether to experience them.

For individuals, staying the course can also involve harvesting losses, which allows you to remain fully invested in the market and can offset gains realized elsewhere in your portfolio.  A portion can potentially even offset ordinary income taxes.  When markets are down, it’s also an opportunity to review individual stock positions or concentrated equity funds and give you a chance to re-deploy that capital in ways that could potentially be more effective for realizing your long-term goals.

All investors will experience rough seas as they embark on a journey to their financial goals.  The course you chart now may change over time, but don’t mistake staying the course for not taking action that can benefit you over the long-term.


1 US Stocks are represented by the Russell 3000.  Source: Morningstar, LLC.  Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.  In US dollars. Data is calculated off rounded daily returns.  Investing risks include loss of principal and fluctuating value.  There is no guarantee an investment strategy will be successful.