The Anna Maria Island Sun Newspaper

Vol. 15 No. 13 - January 21, 2015


Anna Maria Island Sun News Story

Good habits for 2015

Investment Corner

The beginning of a new year is a great time to start good habits or at least try to improve on some of the old bad ones. Losing weight, quitting smoking and getting more exercise top the list of typical resolutions.

Of course, the beginning of a new year is also a good time to review investment results to make sure your portfolio is appropriately positioned for your personal ability to assume risk, both financially and emotionally. There are some great things to do now which can help minimize the impact on your portfolio of an unforeseen event or change in trends.

Rebalance – To rebalance a portfolio you need to have a target asset allocation in mind. Ideally, this allocation should be arrived at through some level of analysis of your tolerance to assume risk. For young investors who don’t need to access their money to produce income for a long time, a portfolio of 100 percent stocks might be OK. For most who are nearing or in retirement, diversification into assets, which may act differently than stocks during a significant market correction, can be important to tone down the volatility, which may cause an investor to make an emotional mistake.

So, bonds, real estate investment trusts, commodities, cash and some alternative investment strategies can be helpful at reducing volatility when blended in a common sense allocation model. Once established, the model serves as the target for periodic rebalancing.

The process of rebalancing means to sell some of the assets, which have appreciated in value in the past year, and use the proceeds to purchase more of the assets, which are underweight due to poor performance. It is a forced sell-high and buy-low strategy, which has been proven to add to returns when applied in a disciplined manner.

For example, over the last two years, U.S. stocks have dramatically outperformed international stocks, most bonds, commodities and cash. The result is that if you started with a target allocation of 50 percent U.S stocks two years ago, you may have about 60 percent allocated there today, if you have not rebalanced. Rebalancing will force you to reduce assets, which are now overvalued, and buy those which are undervalued, which generally leads to a successful investment plan over time.

Don’t assume what’s worked well recently will continue – It is easy to not rebalance as described above because our minds tend to assume that what has been going up the most will continue to go up.

This is called momentum investing, and it works – for a while. But eventually, trends change, and if you have allowed yourself to have the largest proportion of your portfolio in the most overvalued assets, you are doing the opposite of the time-tested procedure of rebalancing. This will not end well most of the time.

Ignore the financial media – CNBC, MSNBC, and other media outlets that focus on financial topics have to fill a lot of air time. Would you watch CNBC if all they talked about was long-term investing and rebalancing? Probably not. But many will tune in to watch Jim Cramer go on a rant about buying and selling for short-term profits, but I’ve never met anyone who actually has made any money following his advice.

The most successful investors tend to follow a boring, disciplined, repeatable process, which is usually a long-term plan. This stuff doesn’t draw viewers, but it does make money.

Good luck, and good investing in 2015!

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit


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