ICYMI Determining your portfolio's strategic asset mix can be an invaluable starting point
People who inherit money or receive a big bonus often think they should do something new with the money. In most cases, the easier answer is the best answer. You’ve already thought about what your portfolio should look like, so build on it by following your SAM.Article contentYou need the most help when markets are in decline and your portfolio is taking a hit. You don’t want it to go down further, and commentators are talking about places to hide.
Let’s assume your portfolio is funding retirement years in the future and your SAM calls for 70 per cent in stocks. Moving into a savings vehicle puts you 70 percentage points off track, which is a huge bet. It implies you’re supremely confident about what you’re doing.SAM also helps when you feel the urgency to act.
SAM provides the action plan. You don’t even have to think about it. Rebalance your portfolio back to target, either by trimming and adding to positions, or using regular contributions and withdrawals to make adjustments. Remember, you’re not making a call on the market or the economy. You’re just getting back on plan and, in so doing, are buying when prices are down and ensuring you’ll go back up with at least as much in stocks as you went down with.If you’ve already made the move to get out of the market, you’re faced with what I’ve dubbed the Hardest Decision in Investing. SAM helps here, too. It’s step one.
Before you determine when and how you’re going to invest, which is step two, you need to reaffirm that your long-term mix balances growth with your tolerance for periods of negative returns. If you’re out of the market, the previous mix was clearly too aggressive.Article content
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