Adrian Mastracci, president of KCM Wealth Management, says “A touch of selling 'high' is a good practice to get used to every so often. It's that wonderful strategy known as periodic rebalancing."

Vancouver, BC (February 11, 2005): Today is an opportune occasion to revisit an important topic about trimming bloated equity pursuits. Many an investor is carrying too hefty a portfolio of equities.

A topic of discussion that investment advisors can have with their clients. Markets have moved, profiles have shifted, client risk tolerances may be different than when they engaged the advisors.

First, the perspective on where equity markets have been. Here is the overview to February 11, 2005:

Adrian Mastracci, investment counsel at Vancouver's KCM Wealth Management, comments, “Thus far, the markets have delivered both a little pullback and some welcome results in 2005. Some pundits describe it as the New Year's hangover.”

“Nevertheless, the markets are still showing substantial gains since January 1, 2003,” remarks Mastracci, “It feels like a bull market run.”

My premise

Investors are very aware of the buy "low" and sell "high" benefits. Of course, the markets can go higher from current levels, and may well do so.

However, now is an appropriate time to revisit the portfolio mix of assets. When market prices are near their "highs".

Particularly for those investors with too large an allocation to equities (stocks & mutual funds). Somehow the equity portions of many a portfolio have bloated to excessive levels, but the reasons are not important.

Judging by the initial portfolios of my first time inquiries, there are many investors in this camp. Equity holdings in the 75% to 90% ballparks are a frequent asset mix. Too frequent, often holding more than twenty mutual funds.

Accordingly, investors who are heavily invested in equities, say 65% and over, ought to have a close look at the portfolio mix. There may be a touch of bloated equity pursuit in this camp.

Investors who have less than 65% allocated to equities should at least review the asset mix. Their aim is to confirm that the current allocations are still appropriate to attain the personal goals.

The remedy

The remedy is to lighten up on the equities, where applicable. Just a little trim. Perhaps, pruning to an asset mix closer to the investor's profile.

The popular wisdom of the day is to ride the winners. However, investors may consider selling some of their winning investments and buy some of the not so winners.

Let’s examine the perspective around these mile high equity allocations. A 70% to 85% mix of equities is considered an aggressive investment profile, while 85% to 100% in equities is speculative.

It takes a serious appetite for risk to embrace the aggressive or speculative profiles. Something that most investors have little or no comfort with.

Say an investor has 75% allocated to equities and the true profile is closer to 60%. Over time, the equity component would be trimmed back to 60% and reinvested in other asset classes.

If the markets venture to higher ground, the investor can do more selling "high". If the markets head lower, the investor can buy "lower".

You see, we are now again hovering near a "high" point for the markets. If a portfolio trim is appropriate, this is a good time to examine it.

After all, it's preferable to sell when the majority wants to get on the bandwagon. Conversely, it's wise to buy when the majority can't wait to unload.

Of course, the costs and income tax implications of each sale ought to be considered before taking any action. Perhaps, some capital losses can be realized to offset the capital gain.

Wrapping up

The investment mantra is to sell "high" at least some of the winners. But let's be clear, selling "high" does not mean selling only at the top.

Yes, it is counter intuitive wisdom for many investors. One they find hard to grasp.

After all, who in his right mind would sell some of the winners! Well, this writer would.

A touch of selling "high" is a good practice to get used to every so often. It's that wonderful strategy known as periodic rebalancing.

Where applicable, a little rebalancing can reduce risk and increase diversification. A portfolio trim may be the ticket to rejuvenate the precious nestegg. Savvy investors would be wise not to pass it up.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.