Should I Rebalance My Accounts?

Should I Rebalance My Accounts?

With the stock market down over 30%, should I rebalance my accounts? This was a question I received recently. We’ll explain what rebalancing is and why it’s a good idea. (Read more below)

Watch Now: Should I Rebalance My Accounts?

Listen Now:
Should I Rebalance My Accounts?

Subscribe Where You Find Your Podcasts

David sent me an email, and he asked, “With the stock market down over 30%, should I rebalance my account?” This is a great topic and a central part of many investment strategies.

What Is Rebalancing?

First, let’s talk about what “rebalancing” is. Many people believe you should diversify your account. You put a portion in stocks, some in bonds, and some in cash. This is your asset allocation.

As things happen in the world around us, that mix changes. Stocks will typically grow at a faster pace than bonds, even though it doesn’t seem like that right now. If you don’t make changes from time-to-time, you will find you have a bigger percentage of your mix in stocks.

Should I Rebalance my Account
click to enlarge

Rebalancing is a non-emotional choice—and that’s important—to sell investments that have done well. Then you buy other types of investments. It is rooted in one of the most basic investing concepts: buy low, sell high.

In Case You Missed it.

Last week we shared the 3 Things to Know About Bear Markets.  Click on the button to watch.

You can rebalance to reduce risk

Most people talk about rebalancing as something to do after good times. It’s a way to reduce the risk in your account. If the percentage invested in stocks gets too high, the risk from a bear market increases. Rebalancing sells those stock positions—at higher prices—and puts the proceeds in things with less risk.

Rebalance My Account Bear Market Impact
click to enlarge

Rebalance after big drops, too!

But it also works on the other side. Now that stock prices have dropped over 30%, your allocation has also changed. You have less invested in stocks than you did before this all happened. So if you rebalance now, you’re doing what? Selling other investments to buy stocks at lower prices.

Bear Market Should I Rebalance My Account
click to enlarge

Talk to a CFP® Pro

Bear markets are tough on all of us.  You can talk to a Certified Financial Planner to discuss your situation.  

The decision to rebalance is about math

This is a “non-emotional choice.” It should have nothing to do with what is going on in the world around us. The decision is based strictly on the numbers.

Should i Rebalance My Account Emotional Bear Markets
click to enlarge
blank
click to enlarge

Here’s what I mean. Your target mix is to have 50% in stocks and 50% in bonds. But after a few good years, the stock part is now 57%, and bonds are 43%. You sell the 7% and put it in bonds, to rebalance the account.

Should I Rebalance - Rebalance in good times
click to enlarge

The same thing applies now, except maybe it’s the other way around. You have 57% in bonds. So you move that 7% back to stocks because the numbers say so.  And when the stock market recovers, you’ll have more working for you.

blank
click to enlarge

Don’t Miss An Episode

Get every episode of Monday Morning Money in your inbox.  Join our mailing list.

Should you rebalance your accounts?

In general terms, it is a really good idea. And if the market falls even further. Do it again. Doing so could help your accounts potentially recover faster.

blank
click to enlarge

(Please note, any investment decisions need to consider all relevant factors in your life. Any rates of return shown are for illustrative purposes only.  They do not represent an actual investment.  This also is not a prediction of future events. If you aren’t sure, please consult a financial planner you know and trust)

Have a Question?

We’ll answer your question on an upcoming show.  Use the form to ask us about what is on your mind.  

Talk to A CFP® Pro!

Don’t Miss An Episode

Get every episode of Monday Morning Money in your inbox.  Join our mailing list.

Subscribe Where You Find Your Podcasts

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  This is now the 5th bear market he has experienced. Unfortunately, it probably won’t be his last.  

Our Most Recent Videos And Posts

The 2020 Bear Market: Here’s Where We Are

The 2020 Bear Market

Here is where things stand with the 2020 bear market, as of March 26.

Bear market 2020
click to enlarge

Some facts

First let’s start with some facts.

  • Current all-time high for the S&P 500 – 3,386.15
  • Current bear market low: 2,237.40
  • Price decline: -33.9%

On the chart above, we put two extra lines. They or show where prices would have to reach to match the two worst bear markets since the 1930s. Those were the dot com bust (-49%) and the great recession (-57%).

Download
3 Things You Need to Know About Bear Markets

In this Free Guide:

  • Define A Bear Market
  • 3 things you should know about them.
  • 4 ideas you can use to improve your future.

What we know

Fastest bear since World War II:  It took just 22 calendar days (16 trading days) to reach the -20% threshold.  It has also been the fastest pace to reach -30% ever.

A Steep Climb Ahead: Based on the current low point (2,237.40), stock prices will have to climb 51.3% to set a new all-time high.  

What we don't know

Was that the bottom? The current bottom was established on March 23rd.  But we won’t know if that was the “official” bottom for quite some time. 

How long it will take to erase the losses: Above, we mentioned prices would have to increase by more than 50% to set a new high.  Everyone would welcome a fast recovery.  But don’t be surprised if it takes longer than you would like. 

Watch: 3 Things To Know About Bear Markets

What can you do?

As difficult as things are right now, we can’t undo the damage.  Focus on what you can do to create the best outcome from here.

Sit Tight: One of the hardest things to do in times like this is to do nothing. But, we need to remember this is just at temporary thing.  

2020 Bear Market
click to enlarge

This chart shows the last 14 bear markets.  It also shows the bull markets that followed.  The bear market periods are both longer and stronger than the bulls.  (That’s why the S&P 500 has improved by over 10% per year since 1946).

Rebalance:  Your allocation to stocks is now lower than it was before this started.  You may want to rebalance your accounts.  This will adjust your allocation back to pre-bear levels. 

Watch: Should I Rebalance My Accounts

Increase your allocation to stocks:  Consider increasing your allocation to stocks.  Even if the market falls further, you’ll be in a better position when the recovery starts.

Talk to a financial planner:  If you are unsure about what to do, talk to a financial planner.  They can help you figure out the best path forward for you.  

Talk to a CFP® Pro

Download
3 Things You Need to Know About Bear Markets

Bear Market Guide financial advisor

In this Free Guide, we…

  • Define A Bear Market
  • 3 things you should know about them.
  • 4 ideas you can use to improve your future.

Don’t Miss An Episode of Our Weekly Podcast: Monday Morning Money

Get every episode of Monday Morning Money in your inbox.  Join our mailing list.

Subscribe Where You Find Your Podcasts

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors. This is his 5th bear market event, and it won’t likely be his last.

Our Most Recent Videos And Posts

Should You Refinance Your Mortgage?

Should You Refinance Your Mortgage?

One of the things not mentioned much in the wake of the big stock selloff was the impact on bonds and interest rates.  This has pushed the rate on 15 and 30 year mortgages to levels we haven’t seen since 2012. Today we’ll answer the question, “Should you refinance your mortgage?” (read more below)

Watch Now: Should You Refinance Your Mortgage?

Don't Miss an Episode of Monday Morning Money. Subscribe Today!

Each week we release a new episode of Monday Morning Money.  Stay up to date by joining our email list.  You can also subscribe to our show where you find your podcasts.  Our episodes are on YouTube, Spotify, iTunes, and Google Play.  

Subscribe to Our Mailing List

Subscribe Where You Find Your Podcasts

You can also find our show where you find your other podcasts.  Click the links below to subscribe.  (Please like and rate us on these sites)

Listen Now:
Should You Refinance Your Mortgage

Don't Miss The Next Episode

Each Monday we release a new episode of Monday Morning Money.  Subscribe today to stay up to date and informed.

Find Us On These Podcast Sites

You can also subscribe to our show on:

Schedule a 15 Minute Call

Do you have a question? Would you like to talk about how we can help you plan for a better retirement?
Click here to schedule a brief 15 minute call.  

The Coronavirus Is Also Affecting Bonds

Most of us are aware of what has been going on in the stock market in the past few weeks. Lots of volatility. Big down days, big up days. Just crazy swings.

But, something interesting also happened that nobody really talked about. Yields on bonds plummeted. The yield on 10-year treasuries fell below 1% for the first time ever. And for a moment, it fell below 0.5%

Why is this important? Mortgage rates are closely linked to the yields on 10-year government bonds.  And these record low yields have created a surge in demand to refinance loans.  So, should you refinance your mortgage?  Here are some key things to consider. 

These falling yields mean the interest rates for a mortgage have also dropped. Mortgage rates hit an all-time low in 2012. And we are testing those levels again.

Is it time to refinance your mortgage

Is Now The Time To Refinance?

It may be a good time to consider refinancing the note on your house. So what are some of the things that factor into your decision to refinance or not?

Mortgage Refinance

1. How Much Interest Will You Save?

It takes some time and know-how to compute this. But you can compare how much interest you will pay on your current mortgage to what you’ll pay when you refinance. If there is significant savings, it’s worth looking deeper. 

 

Bonus Tip:

Refinancing may reduce your payment. But consider keeping your monthly payment the same. The extra gets applied to your principal. You’ll pay off your mortgage faster. And you’ll save even more in interest expenses.

mortgage refinance

2. How Much Will It Cost?

Refinancing your loan means some upfront costs. You have origination fees, closing costs, appraisal costs, and maybe some other fees. Do those fees justify the potential savings?

Here's an example

Current Loan

Jane and Bob purchased their house about five years ago.  Their original loan was for $150,000.  The interest rate was 4%.  They have made 60 payments on their house.  

Over the rest of their loan, they will pay about $79,945 in interest expenses. 

Refinance

After looking into refinancing at lower rates, they discovered they will pay about $3,000 in origination fees, closing costs, and other fees.  

The interest rate on their new loan is 3%.  They extend their repayment period by 5 years.  Their monthly payment decreases by $130 per month.  And over the life of the loan they will save over $7,700 in total interest expense.  

Is It Time to Refinance Your Mortgage
click to enlarge

But wait, there's more

They keep their payment the same!

Jane and Bob elect to pay their original payment.  This means they pay an extra $130 per month on the new mortgage.  They will pay it off in 22 years—that’s earlier the original loan.  

Also they will save over $28,000 in total interest costs!

refinance your mortgage

3. Do You Need To Do Major Repairs Or Updates To Your Home?

Over time big things need repaired or replaced. A new roof, a new driveway or new flooring are all big-ticket items. For some, the only way to make those expensive repairs is to tap into the equity they have accumulated. This may be a great opportunity to consider that.

The coronavirus scare has created an opportunity to lower your interest costs. But be careful, check your numbers, and make sure it is the right thing for you to do. If you have questions, talk to a financial planner you know and trust.

Schedule a 15 Minute Call

Do you have a question? Would you like to talk about how we can help you plan for a better retirement?
Click here to schedule a brief 15 minute call.  

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos And Posts

Still Not A Bear Market

Still Not A Bear Market, Yet

Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears even more. The Dow fell over 2,000 points for the first time ever. It was a headliner type day.

You can’t brush a day like that aside and say, “It was no big deal.” It is a big deal. The 7.6% decrease was the worst day for stocks since 2008. And it was the 24th worst day ever recorded. And this comes on the heels of two of the wildest weeks I can remember in my 24 years as a financial planner.

It feels really bad. The “fear index” reached its highest level since the Great Recession. Volatility is extreme.

Still not a bear market

Still Not A Bear Market

But here’s the thing that hasn’t gained traction in the financial media. This is still not a bear market, yet. And “yet” is important. Year to date the stock market has dropped 15%. From it’s high in late February, prices have dropped 18.8%. We don’t find the bear until prices drop 20%.

I say “yet,” because we could easily find the bear’s den in the next few days. I believe it is more likely than not. But there is always a chance we don’t cross that line for a while, if at all.

STill Not a bear market

The Second Hardest Thing To Do...

This is the unpleasant part of being an investor. Riding through the waves of big down days and big up days. “It feels like we are riding The Beast at Kings Island,” as one client put it. That’s a pretty good analogy.

Unfortunately, it looks like this wild ride may continue for a while longer. The impact of the virus both to our health and the economy remains unknown. And now an oil price war adds to the hysteria. We have no control over the uncertainty or the attention. But we can control what we do.

Doing nothing is the second hardest thing to do in times like this. But it is often the best course of action. We can look back at the past 20+ years and find many reasons to sell our shares of great businesses. But those reasons can’t overshadow why we hold onto those positions.

Still Not a bear

What's The Hardest Thing To Do?

What’s the hardest thing to do in times like this? Buy more stock. The shares of these great businesses are on sale for a limited time. The prices might get better, but the sale won’t last long.  Remember, you are supposed to buy lower.  We may not see an opportunity like this again in our lifetimes.

Schedule a Call

At times, being a patient long-term investor is hard.  We are glad to discuss your situation in greater detail.  If you would like to talk to us, click the button. 

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Should I Sell My Stocks

Should I Sell My Stocks?

Should I sell my stocks? It was a hot topic during the last week of February. Today on Monday Morning Money, we’ll talk about reacting to extreme volatility in the stock market.  (Read more below)

Don't Miss an Episode of Monday Morning Money. Subscribe Today!

Each week we release a new episode of Monday Morning Money.  Stay up to date by joining our email list.  You can also subscribe to our show where you find your podcasts.  Our episodes are on YouTube, Spotify, iTunes, and Google Play.  

Subscribe to Our Mailing List

Subscribe Where You Find Your Podcasts

You can also find our show where you find your other podcasts.  Click the links below to subscribe.  (Please like and rate us on these sites)

Don't Miss The Next Episode

Each Monday we release a new episode of Monday Morning Money.  Subscribe today to stay up to date and informed.

Find Us On These Podcast Sites

You can also subscribe to our show on:

Schedule a 15 Minute Call

Do you have a question? Would you like to talk about how we can help you plan for a better retirement?
Click here to schedule a brief 15 minute call.  

The "Stuff" Hit The Fan

At the end of February, the proverbial stuff hit the fan. We were coming off the worst week in the stock market since 2008. Prices dropped over 11% on fears of the Coronavirus. When extreme drops like this happen, our instincts kick in. The urge to protect what we worked so hard to save becomes very strong.

A week ago, had you typed the words “should I” into google, the first auto-generated question was:

Should I sell my stocks?

In our experience, the answer to that question most of the time is “no.”

It's not "sell low, buy higher"

Emotional reactions to these big moves tend to reduce your lifetime returns. The rule says, buy low sell high. When we react to these events we tend to do the opposite.

People wait until prices have dropped and then sell. Then when things look better, they get back in. But many times, they are buying at higher prices.

Should I Sell My Stocks
Click to Enlarge

The Impact of Emotional Reactions on Real-Life Returns

There is a company that tries to compute the impact of emotional reactions on real-life returns. DALBAR has been conducting their qualitative analysis of investor behavior for several years. The study tries to show the gap in performance between investments and investors. At times, this margin has been significant.

Imagine the impact on your nest egg if the emotional performance gap lowers your returns by 2%. Instead of earning 7% per year on a well-diversified portfolio, you earn 5%. Over a long period of time, the compounded difference will be significant.

The more often you make reactionary decisions, the more chances you have for errors. And those errors can be very costly to your future.

blank
Click to Enlarge

The Price We Pay for the Growth We Need

Nobody likes to sit through the temporary declines, but they are the cost of the longer-term gains we depend on for growth.

I’ll close with this take I read recently. We don’t know which direction the next 20% move in the stock market will be. But we can be quite certain of the direction of the next 100% move in stock prices. We would hate to miss it.

Schedule a 15 Minute Call

Do you have a question? Would you like to talk about how we can help you plan for a better retirement?
Click here to schedule a brief 15 minute call.  

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos And Posts

You Should Expect A Stock Market Correction in 2020

You Should Expect a Stock Market Correction in 2020

Since late 2018, the stock market has raced higher. Along the way, it has hardly missed a beat. This year looks to be a very interesting year. But we should all be prepared for a reset of sorts. Today on Monday Morning Money, we’ll tell you why you should expect a stock market correction in 2020.

Watch: You Should Expect a Stock Market Correction in 2020

Audio Only Version:

Stay Up To Date. Join Our Mailing List.

Each week we will notify you when a new episode of Monday Morning Money is published. Please complete the form below to subscribe. 

Complete the Form to Subscribe

* indicates required

Each Episode of Monday Morning Money is also broadcast on Local Radio, WMOA (1490 AM and 101.3 FM).  You can hear it at 11:07 every Monday. 

Listen Now: You Should Expect a Stock Market Correction in 2020

Other ways to listen...

Stay Up To Date. Join our Mailing List.

Each week, we will notify you when a new episode of Monday Morning Money is published.  Please complete the form below o susbscribe.

Please Complete the Form To Join Our List

* indicates required

Schedule a 15 Minute Call

Do you have a question? Would you like to talk about how we can help you plan for a better retirement?
Click here to schedule a brief 15 minute call.  

A Quick Note:  This episode was recorded early last week.  We had no idea that the stock market would drop as rapidly as it did.  We officially entered correction territory last thursday. 

A Normal Part Of Investing

Why should you expect a stock market correction in 2020?  We have no real knowledge of impending doom or anything like that. Sure, we are dealing with the Coronavirus, and last week we saw the Stock Market react harshly to the ongoing news.  In addition, we are also dealing with a lot of political stuff.

In the past 40 years, there has been an annual price decrease of at least 7% a total of 33 times.

The textbooks define an official correction as a 10% decrease in stock prices. That has happened in 21 of the past 40 years—more than half of the time.

The average calendar year price drop since 1980 is 14%. And the stock market has had calendar year declines of that much—or more—15 times.

You Should Expect A STock Market Correction
Click to Enlarge

A Stock Market Correction Doesn't Mean A Bad Year

Of the past 40 calendar years, with all of those annual adjustments, how many times was the stock negative for the year? Seven.

Since 1980, the stock market posted a negative year seven times. That’s about 1 out of every five years. The average total return for stocks over that same time frame was 11.8% per year.

Download The Stock Market Correction Infographic

We created this infographic to show you the frequency and magnitude of annual stock market corrections.  Click on the button below do download your copy.

Expect Stock Market Correction

When You Expect A Stock Market Correction, You Can Make Better Decisions

These interruptions are normal. They are the rule, not the exception. The “reasons” why rarely matter, but how you react to the downturn does.

When we expect a correction, it makes us better investors. We can prepare ourselves for the possible downturn. And that can help us focus on making good decisions in what can be a stressful moment.

Tell yourself, “It’s gonna happen.” When it does, be disciplined and follow your plans. And that will help you avoid the mistakes that could cost you far more in the long run.

Schedule a 15 Minute Call

Do you have a question? Would you like to talk about how we can help you plan for a better retirement?
Click here to schedule a brief 15 minute call.  

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos And Posts