Index Funds
July 12, 2021

Investment Goals and Rebalancing Your Portfolio

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Show Transcript

Hi everyone, thanks for listening to a new podcast series. This is Episode #1. My name is Scott Salaske. I’m the CEO of Firstmetric. Firstmetric is an investment management firm for full disclosure. We manage investment portfolios for clients in a low-cost way using asset class and index funds.

With that said, this show is going to cover a number of different topics about investing, mostly centered around investment management and how to construct a portfolio, what investment options you should use in a portfolio, how often you should rebalance your portfolio, what to look for when you're picking investment options.

A lot of the podcast series we’ll be covering topics either that they're just kind of off the cuff that I've been thinking about for awhile or that people have asked me about or others, and also there will be times we will have guests on the show as well, bringing their areas of expertise.

Rebalancing your portfolio.

Since this is our first show, I want to cover a topic today that I've been thinking about now for a while with the market at all-time highs, and that topic really is going to be on rebalancing: When to rebalance your account, and do you have the right asset allocation strategy?

It’s one thing to rebalance an account and do that on a consistent basis, and maybe in a future episode we’ll talk about rebalancing, there’s many different schools of thought on rebalancing.

Your asset allocation strategy.

But for today's podcast since this is our first podcast and with the market at all-time highs, I want to really stay focused on the concept of how much should you have in stocks and bonds. In other words, what is your asset allocation strategy? So the question is, why is this important?

Well, it's important because we’re sitting at all-time highs in the markets right now, and you need to know what your investment strategy is, what your asset allocation strategy is in the portfolio.

This is a key determinant of overall risk that you're taking in your portfolio. So, it's important to know what that is, and what is asset allocation?

What is asset allocation?

Well, asset allocation in its simplest form is how much you have invested in stock and how much you have invested in bonds, and that can be in any form.

That can be in individual stocks. That could be in mutual funds, index funds. It’s the same on the bond side: individual bonds, bond funds, active bond funds, bond index funds.

There’s a whole host of different ways you can buy into the stock in bond markets to invest your portfolio, but we’re not going to discuss those topics today.

Setting investment goals.

We want this podcast to really stay focused on the concept of what is your asset allocation and is it time to rebalance that, and look at that and say, “Have I met my goals?”

And of course the only way you're going to know that as if you knew what your goal was to begin with, but if you don't know what your goal is, now is the perfect time as any to sit back and set maybe a new realistic goal.

And then for folks that are out there that have set a goal, now is the time to really sit back and look at and evaluate whether you met that goal, or the markets, the bull markets for the last eight and half years have allowed you to get closer to that goal or reach that goal faster than you would have otherwise.

These are perfect examples to go back and revisit your asset allocation strategy.

Your required rate of return.

Let's just use an example. Let's say that you are looking to retire at age 65 and you’re trying to reach a million, $2 million or $3 million by the time you retire at age 65.

Whatever the dollar amount is, that's the end result of where you want to be on a certain date or a certain point of time into the future.

And to get there from point A to point B, requires a certain amount of time and a certain amount of returns from the market, and that amount of returns, the performance during that period is what I'll call on this show the required rate of return.

So, that's how much return you need to get from point A to point B with the amount of money that you had originally or that you have today where into the future on a certain day you're going to meet a certain investment goal.

Setting realistic investment goals.

Now for the last eight and half years we've been in this bull market, and this bull market now has maybe pushed your portfolio closer to that goal much faster than otherwise would have.

So, this is an opportunity to sit back and look at your investment portfolio, and say, “Are my goals still realistic? Am I still trying to achieve retirement using my example age 65 to have $1 million, $2 million,$3 million, whatever that number is... Have I reached that? Am I at a $1million now? Am I at $2 million? Am I at $3 million?” If you are, then you’ve made it.

The idea of investing is to reach a goal and then hopefully maintain that goal as you continue to move forward and set new goals.

Maybe the new goal once you retire is, now you need to adjust the portfolio to provide you income during retirement, as well as growth, so you don't outlive your money. So, these are all topics that are very timely right now.

You can't control the markets.

The market is at all-time highs, and there's a lot of things that I'm reading out there that people are questioning: Should they be rebalancing the portfolio? Should they be paring back their portfolio? Should they be taking risk off the table?

These are all valid questions and these are all things thatI think that they really need to be addressed. I mean I have no idea whether the market is going to keep going up for the next one, two, three months, one, two, three years.

Nobody knows what the markets are going to do. I don't know whether interest rates are going up or interest rates are going down. Nobody knows that. If they do tell you that, they’re misleading you, because nobody knows.

These are all just guesses that people might have.

Now may be the time for a permanent change to your portfolio to more closely match your investment goals.

But what we do know is we do know the size of your portfolio. We know how much assets you have today. You know how much at the end of the day you're trying to reach, hopefully.

You know hopefully what your investment plan is. If you don't, like I mentioned earlier, now is a perfect time to set an investment plan that's reasonable going forward.

But let's assume that you do have an investment plan in like we just used in some examples, that if you've now got much closer, quicker, or you already reached your investment plan, now is a perfect time to scale back your asset allocation.

Make a permanent adjustment to how much risk you’re taking in the portfolio.

Investing is all about reaching goals.

The idea of investing is to reach a goal, as we discussed.It’s not to just invest blindly and throw money into the markets, and not really know how much risk you’re taking or why you’re investing.

One of the key concepts with investing is that no one should ever invest money if they don't know what their investment goal is with that money.

Because if they don't know what their investment goal is, then they don't know how much to invest, they don’t know what kind of rate of return they need, therefore they don't know how much investment risk they should be taking with their portfolio.

This is a concept that we can really see during many different market cycles. So, we saw this when the dot-com bust occurred in2000, 2001, 2002.

We saw this again in 2008 and 2009 when the market bottomed out in March 2009, and we’ll probably end up seeing this again through this different market cycle, whether it’s now or it’s months or years into the future.

When the market does have a correction, it does pull back.At these times and we've seen this in the past is that people tend to get more aggressive with their portfolios, rather than more conservative with their portfolios. So, psychologically that’s the opposite of what you really should be doing at this moment in time.

Your investment portfolio may be too aggressive.

At this moment in time, you should be scaling your portfolio back. Like I said, if you’ve met your investment goal or you’re much closer to your investment goal, where you don't need to take as much risk now by investing as aggressively in the portfolio into stocks and bonds.

So, this gives you the ability to sit back and permanently, like I said, take risk off the table. When you do that, you’re rebalancing back to a much less aggressive portfolio, but it’s not a temporary thing that you're doing. It’s not because we think the markets are going to go down, or we think there's a correction coming, or we think the bottom’s going to hit.

These are things that are just mathematical formulas. Simple math, if you will.

You’ve reached the goal or you’re closer to that goal now, so you have to sit back and you’ve to say, “Geez, I need less money in stocks, and I need maybe less risky bond positions in my portfolio.

I need to be more conservative. I don't need to hit the ball out of the park anymore. I need to keep the ball in the park.”

Investing and emotions are like oil and water, they don't mix.

Now is a perfect time to sit back and look at what is that goal going to be, what new required rate of return do you need to either reach that goal if you're not quite there yet, or if you have reached that goal, what is the new goal now going forward for the portfolio.

That new goal may require less risk, and when you have less risk in the portfolio, we all know that you tend to do things more methodically and less emotionally, the less risk that individuals take.

I have seen over 20 years working with individual clients that people tend to become emotionally involved when they're taking too much risk with their portfolio, rather than stepping back and letting the emotions unwind and letting methodical, levelheaded approach take hold.

Control what you can in your portfolio.

Now remember, this is a permanent reduction in risk in the portfolio. This is looking at it and saying, how much can I have less in stocks, how less aggressive can I make my portfolio permanently, not again because the market is going to go one direction or another.

We don't know what the markets are going to do. You can't control the markets. What you can control is you can control your exposure to stocks and bonds.

Take a few minutes and do some homework.

My suggestion is take a few minutes, become reacquainted with your investment portfolio if you have an investment manager or advisor managing your portfolio, and even if you don’t, obviously more responsibility is put on you to know what your investment plan is if you’re self-managing your own accounts.

So, pull out your account statements or get online.Understand how your accounts are being managed today, what exposure you have to stocks and bonds, how much exposure again that you need, are you close or you’ve already reached that goal now because of the bull market for the last eight and half years.

And if so, now it’s a permanent time to take that risk off the table.

Is reducing risk in your investment portfolio really necessary?

But you might be saying, wait, if I'm closer to reaching my retirement goals or I'm already reached my retirement goal, why do I need to take risk off the table?

Well, that's a very important concept and question that a lot of people ask, and I think that that is worth spending a couple minutes talking about as well.

So, taking risk off the table is really the idea of minimizing risk: how much less risk can you take if you’ve met your goal or you're getting closer to reaching your goal because the market has pushed you there faster, because as we mentioned the last eight and half years of the bull market that we've been in.

But that brings up an interesting question, and this question comes up a lot in conversations when you're talking about the concept of low risk or taking risk off the table, because you've either met an investment goal or you’re getting closer to reaching an investment goal.

That is a concept that at the end of the day will allow someone to ask the question, “Well, if I've made it or I’m close to making it, why can't I take risk?”

And that's an excellent question, but a lot of times you don't know why you're taking risk to begin with.

You don't know what level of risk you're at, and you don't know how to quantify how much you should be taking versus how much you want to be taking.

Knowing how much investment risk you need to take versus how much you may want to take.

In a situation where you’ve either met your investment goal or you’re getting close, you may be able to pare back the risk in the portfolio to a certain point and at that point, you may look at it and say, “Gee, I can assume more risk than that, because I know why I’m doing that now.”

You're doing that because you want to take extra risk with the hopes of getting potentially higher returns if the market continues to perform in a certain way, but it’s not because you need to, it's because you want to.

There's a big difference between need and want. What I have found working with individual investors is that a lot of individuals don't know the difference between the need and the want: how much risk do they need to take, how much do they want to take.

So, I don't know if this is something that you have given thought to over the years, but it's certainly a concept that a lot of people think about when you start talking about rebalancing a portfolio or taking risk off the table.

This is the perfect time to answer and talk about all those questions.

Revisit your investment plan before rebalancing.

I don't think that there's enough conversation about going back to revisit investment plans.

A lot of times, whether you as an individual are managing your own accounts, self-managing your account, or you've hired an investment manager or advisor to manage your account, oftentimes under either scenario, an investment plan is set and asset allocation strategy set: how much am I going to have in stocks and bonds?

And then once that is in place, then normal rebalancing occurs as the market goes up or the market goes down to keep that target plan on the path to hopefully reaching your goal.

But there's not a lot of talk out there and not a lot of people have written about the concept of how do you go back and revisit an investment plan, and it’s not done that often.

Don't set and forget your investment plan.

A lot of times there’s other reasons to go back and revisit an investment plan. There’ll be concepts of that you receive large inheritance recently. Was there unexpected monies that were needed from the portfolio or deposited in the portfolio?

All of these things potentially are reason to take pause and go back and revisit what your investment plan is. It’s not a blind plan where you set it and forget it.

The idea of setting it and forgetting it is great for asset managers and investment advisors, because it's a static portfolio that they end up managing.

Unexpected changes to your investment plan.

But an idea that as life happens I call it, every day you wake up and life happens. You need money. You have to put a new roof on your house. You have to buy new vehicle.

You want to buy vacation home. Whatever the case may be, there's needs from the portfolio that may or may not have been anticipated.

Those are also reasons to go back and revisit the investment plan and decide am I taking the appropriate level of risk, that the opposite could happen.

There could be times where you now need to increase the risk of the portfolio, not decrease the risk of the portfolio, because of a lot of unexpected maybe withdrawals from that portfolio during the period of time you’ve been investing.

This is a concept that I think works both ways. I’m not going to focus too much on the concept of what we just talked about regarding distributions and other unexpected withdrawals from the portfolio going forward.

It's more on the concept of today's podcast of the market has now reached a point where we’re at all-time highs.

And as we mentioned in summary, we don't know whether the markets are going to up, it's going to keep going up, it’s going to be going up for another month, two months, three years, four years, five years.

Nobody knows when we’re going to have that event, whatever it is push the market into potentially a correction mode.

How much risk do you need and how much risk do you want?

While the markets are performing nicely going forward here up to this point, now is the perfect time to go back and look at your portfolio, see what risk you're taking, and determine are you too aggressive with the portfolio when you don't need to be.

Remember, the key concept is how much risk do you need and how much risk do you want, and usually those are two different things.Sometimes they’re the same or close to the same, but oftentimes they’re two different things.

The wants are usually much more aggressive than the needs, and maybe it is a compromise, maybe you go in the middle of the road there.

You don't become the least aggressive that you can be with the portfolio and hopefully still meet your investment goals, but also maybe you don't become the most aggressive with it either.

You sit back and you look at it and say maybe the middle of the road is where you need to be.

Taking investment risk off the table.

In summary, today's podcast I think is very timely. It's atopic that I have been thinking a lot about lately just because I've gone through these market cycles with advising clients.

Usually most of the time during those calls, clients are looking at their portfolio. And the conversation prompted by the client is not usually “How much risk can I take off the table?”

Usually, it’s “I’m thinking about becoming more aggressive with my portfolio, because the market has been doing well.” That's really the opposite of the way that you should be thinking about your investment portfolio right now.

You should be thinking about, again, how much risk do you have to take and how much risk do you want to be taking with the portfolio.


I hope today's podcast brought up a topic that maybe you’ve been thinking about as well, and if it has, great.

And hopefully you’ve learned something on today's podcast. I look forward to having future podcasts.

As we mentioned, those future podcast will have a lot of different topics we’ll cover. Some of them will be current event topics.

Some of them will be more long-term evergreen topics that really can be applied at any time, and then also we’ll have guests on the show as appropriate to talk about various topics.

Certainly, as we’re getting questions from our own clients and prospective clients that we’re talking with, those may bring opportunities to address some questions that more and more people are asking at any given time going forward.

I look forward to having many more future podcasts, and hopefully they will cover topics that you've been thinking about as well.

Again, thanks for listening and taking the time out of your schedule today to listen to our first podcast.

If you like today's podcast, I would suggest that you head over to our website at That’s spelled

Under our Blog section where we’ll have some of this content for our podcast, there’ll be a link at the bottom of the blogs that says “Signup for our mailing list,” and you will automatically get an email when the next podcast or blog is released on our website.

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Thanks a lot, and I look forward to talking with you again soon.

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