3Q2020 – When in Doubt, Rebalance!

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Jake’s Take – 3Q2020

With deep concern surrounding the pending elections, and elevated volatility (read: market swings) priced into January 2021, stocks continued to climb the wall of worry, finishing the 3rd quarter up over 9%.  For those keeping track at home, where most readers are still semi-confined, that leaves the total return for US Markets, as measured by the Russell 3000, up 15% over the past year ending September 30^th.   This remarkable – dare I say, unprecedented -performance comes despite our country’s virus death toll surpassing 200,000, high unemployment and the uncertainty around the potential transfer of presidential power.  So if there’s so much uncertainty in the markets, isn’t this a good time to sell?  The market’s rebound from March lows have been, well, historic, so it makes sense to ask whether it’s a good time to “take chips off the table.”  The short answer is, as it was with my previous five or more articles, it depends on your time frame.  Investors looking at the next 6 months or more should expect increased volatility, and if your investment timeframe is measured in months, you should probably move away from stocks.  Investors with a time horizon of 5-7 years or more should be okay riding out temporary market swings.

At the end of February, as the global markets were in a free-fall, I wrote my first of two articles on volatility.  In it, I said “It’s okay to evaluate your overall allocation to stocks and bonds during [that] time, but generally an investor’s inclination to sell or buy is inversely related to the proper time to do so.  Proper, long-term investment allocations are based on risk profiles and investment time horizons.  Market fluctuations should be used to make adjustments for tax-harvesting opportunities and rebalancing to your strategic long-term objectives.” By mid-March, I had reviewed my client portfolios, confirmed the strategy in place and where appropriate, used the selloff as an opportunity to rebalance their portfolios and harvest losses.  As a result, today most portfolio management clients have accounts that are near or exceed where they were prior to the selloff and realized tax losses which may help them come tax-time.  But while I’ve written numerous times about the importance of remaining disciplined through periods of market volatility, it’s also important to evaluate opportunities for rebalancing during periods of relative market calm, as I’ve done recently with clients.   Ask yourself how you reacted during the selloff?  Did you panic and want to reduce your exposure stock holdings?  Did you look at your portfolio daily (or more?)  If you found your portfolio’s allocation to be too aggressive, now may be just the right time to get your portfolio more appropriately invested…for the long term, of course.