 |
| Adrian Mastracci, president of KCM Wealth Management, says “Today, many an investor is carrying too hefty a portfolio of equities. Put another way, a severe drought of fixed income." |
Vancouver, BC (April 18, 2006): Investors have yet another opportunity to revisit and contemplate the all important asset mix.
An unknown author once said, "Success comes in cans, not can'ts."
Adrian Mastracci, “fee-only” investment counsel at Vancouver's KCM Wealth Management, comments, “Well, the pesky markets have moved up again. Investment profiles may have shifted. Risk tolerances may be different now than in the last three or four years."
Today, many an investor is carrying too hefty a portfolio of equities. Put another way, a severe drought of fixed income.
Managing the portfolio is like having many tools in the toolbox. There is, however, one favourite tool that gets used often.
I have my favourite portfolio tool. It can easily be applied to today's markets. Let's get to it.
My favourite portfolio tool
The markets have risen substantially since January 2003. Investors are quite happy to be showing gains again. Especially, after that brutal bear market that began in early 2000.
Today, it's both prudent and sensible strategy for every investor to take full advantage of the markets. And put the personal investment house in order.
Fix the venerable asset mix, that is. My favourite portfolio tool. It's simple to use, yet very powerful. Anyone can use it too.
No doubt, the markets can move higher and may well do so. But I'm not smart enough to predict market direction with any accuracy.
However, I definitely know that revisiting the portfolio mix makes a lot of sense. When market prices are again hovering near their highs for 2006.
Particularly for investors with a large allocation to equities (stocks and mutual funds). Judging by the portfolios of my first time inquiries, there are many investors very firmly in this camp.
My two-fold premise
Equity holdings in the 75% to 90% ballparks are a frequent asset mix that I see in many portfolios. Often owning more than 20 mutual funds.
I have to squint to find a fund, among the glut, that has traces of bonds or treasury bills somewhere in its holdings.
Let’s put high equity allocations into perspective. A 70% to 85% mix of equities is an aggressive investment profile, while 85% to 100% in equities is speculative.
It takes a serious appetite for investment risk to embrace either the aggressive or speculative profiles. Some investors don't realize they are so heavily invested in equities.
So, my simple portfolio premise is two-fold:
1.. Investors who are heavily invested in equities, say 65% and over, ought to have a very close look at their current asset mix. It's probably quite different than their real investor profile.
2.. Investors who have under 65% allocated to equities should also review the asset mix. Primarily to reconfirm that the current mix is still appropriate to attain the personal goals.
My mix fix
The smart and simple fix for many is to lighten up on the equities, where applicable. Just a trim, not necessarily a wholesale change.
Perhaps, pruning to an asset mix closer to the investor's real profile. Most of whom would be comfortable in the 40% to 60% equity mix.
The popular wisdom of the day is to ride the winners. But just because it's popular, doesn't mean it's always wise.
The wiser strategy is to sell some of the winning equities and buy some of the other asset classes.
Say an investor has 80% allocated to equities and the true profile is closer to 60%. Over time, the equity component would be trimmed back to 60%. The proceeds are reinvested in other asset classes.
Reinvestment does not always have to be done all at once. Perhaps, over 3 to 6 months is acceptable for some.
Of course, all the costs and income tax implications of each sale ought to be considered before taking any action.
Some investors are in the position to add new funds to the portfolio. Their approach can be to keep the equities and allocate the fresh money to asset classes whose targets need to be increased. Such as bonds and cash instruments.
My wrap
The wise move for many is to sell high some of the winning equities positions. Yes, I agree -- it is counter intuitive wisdom for many investors. One they find hard to grasp.
A touch of selling high is a good practice to rediscover for portfolios laden with equities. It reduces portfolio risk and helps diversification.
Positioning the portfolio to the markets, with the personal criteria in mind, is a key component of managing the serious money. The bottom line is that it can be done rather easily.
Fix the mix, invest wisely. The portfolio tool is in your toolbox.
|
