Policies from the new U.S. administration are resulting in significant shifts in geopolitical alliances, which are likely impacting the global economy. We are seeing renewed volatility in both U.S. and global markets. When market volatility spikes, it can be tempting to reduce risk by scaling back your target asset allocation, shifting away from equities in favor of more fixed income securities. However, changing your target asset allocation too frequently in response to market events can be very costly to you. Attempting to time the market is never advisable, whether by frequently changing your target asset allocation or by jumping in and out of asset classes or sectors. Dimensional Fund Advisors’ useful illustration below reminds us how costly this behavior can be.
Your financial advisor can help you determine the appropriate asset allocation for you. Your age, life stage, assets, income, and risk tolerance should all be factored into this decision.
Setting your target asset allocation should be a long-term decision, one that is revisited and adjusted as needed when approaching major life transitions. For example, preparing for retirement is a natural time to consider reducing your equity target. However, if you receive substantial guaranteed income from pensions or Social Security, it may be appropriate to maintain your equity target at its pre-retirement level.
If you find yourself in the unfortunate position of losing a spouse, it’s also a good time to revisit your target asset allocation. Your perspective on risk may change, in comparison to your view of risk when it was previously shared with your spouse.
Leverage your financial advisor to help you understand the changes in your financial plan and provide insight into your updated risk profile. We are here to help you through all major life transitions!
For long-term financial success, your target asset allocation should be set at a level you can commit to for extended periods, even during times of heightened volatility. Use major life changes as a reminder to review your plan and allocations. Don’t make changes to your portfolio in reaction to world events; history shows that doing so can hurt your long-term performance.
Sources:
Disclosures:
Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product or any non-investment-related content made reference to directly or indirectly in this material will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions. Please note the material is provided for educational and background use only. Diversification seeks to improve performance by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Past performance does not guarantee future results. All data is from sources believed to be reliable but cannot be guaranteed or warranted.
No current or future client should assume that any discussion or information contained in this material serves as the receipt of, or as a substitute for, personalized investment advice. As with any investment strategy, there is the possibility of profitability as well as loss.