How to Adjust Assets in Your Investment

Investing can be likened to a personal hobby, much like surfing.  If you are into it, it will definitely will make your way high up if you dont give up.  Just as a surfer stays on their board and rides out the waves, an intelligent investor should avoid making impulsive decisions based on emotions. I always receive these questions during client meetings, when to adjust my investment during this time of uncertainty.  

Panic selling or changing investment strategies during market downturns can lead to significant losses and hinder long-term financial goals. Instead, like what happened during the pandemic, successful investing requires discipline, a clear plan, and an understanding of when to adjust assets based on expected returns and future needs. This article will explore the importance of staying the course in investment, how to determine when to adjust assets, and the significance of understanding the fluctuations in the stock market.

Staying Calm in the Face of Market Volatility:

Market volatility is a natural part of investing. The stock market experiences ups and downs, and investors may face challenging periods when prices decline. It is essential to avoid making knee-jerk reactions to short-term market movements driven by emotions like fear and panic.

Staying the course means adhering to your investment plan and resisting the temptation to make drastic changes during turbulent market conditions. By maintaining a long-term perspective and staying calm during market downturns, investors can avoid selling assets at a loss and potentially benefit from a market recovery.

Understanding Expected Rate of Return:

One of the key factors in determining when to adjust assets is the expected rate of return. The expected rate of return is the reasonable estimate of how much an investment is expected to earn annually. It is essential to have realistic expectations about potential returns to make informed decisions about asset allocation and investment strategies.

The S&P 500 as a Benchmark:

The S&P 500, consisting of 500 large-cap stocks, is often used as a benchmark to assess the overall performance of the stock market. Over the past 60 years, the S&P 500 has delivered an average annual return of approximately 11%. However, it is crucial to recognize that returns fluctuate significantly, with daily moves of 1% to 2% being common.

While the average return over a long period may seem attractive, it is essential to understand that short-term fluctuations can impact overall performance. Market gains in the first nine months of the year can be offset by significant losses in the later months, resulting in a flat performance for the year.

The Importance of Long-Term Perspective:

Investors must maintain a long-term perspective and not be overly concerned with short-term fluctuations. Staying on course means recognizing that working for free, in terms of not seeing immediate gains, is a common occurrence during market downturns.

For example, let's consider an investor with a $50,000 stock portfolio and an annual salary of $50,000. On a day when the market falls 1%, the investor could lose $500, effectively working for free that day. Such experiences can be disheartening, but they are part of the normal ebb and flow of the markets.

The Power of Compounding Interest and Time:

Despite short-term fluctuations, staying the course and adhering to a long-term investment strategy can lead to significant wealth accumulation over time. The power of compounding allows the growth of investments to accelerate as earnings generate additional earnings.

Time in the market, rather than timing the market, has proven to be a more effective strategy for building wealth. By remaining invested and not succumbing to market noise or emotional reactions, investors can benefit from the potential growth of their portfolios over the long term.

Determining When to Adjust Assets:

While staying the course is vital, there are situations when adjusting assets may be necessary. Here are some factors to consider when evaluating your investment portfolio:

Changes in Financial Goals: Life circumstances change, and so do financial goals. Reassess your financial objectives regularly and adjust your asset allocation to align with your changing needs.

Risk Tolerance: Evaluate your risk tolerance and adjust your asset allocation accordingly. As you approach retirement or experience changes in your financial situation, you may seek a more conservative investment approach.

Portfolio Rebalancing: Over time, the value of different assets in your portfolio may change, leading to an imbalance in your original asset allocation. Periodically rebalance your portfolio to maintain your desired asset mix.

Diversification: Ensure that your portfolio is well-diversified across different asset classes and sectors to reduce overall risk.

Market Conditions: Monitor market conditions and economic indicators, but avoid making knee-jerk reactions based on short-term market movements.

Successful investing requires discipline, a long-term perspective, and an understanding of expected returns and market fluctuations. Staying the course is a fundamental principle in investing, where investors resist making impulsive decisions during market downturns. By adhering to a well-thought-out investment plan and maintaining a realistic view of expected returns, investors can navigate the ups and downs of the market and achieve their financial goals over the long term. While there are situations when adjusting assets may be necessary, it is essential to do so with a well-considered strategy rather than reacting to short-term market noise. Ultimately, intelligent investors understand that investing is a journey, and staying on their board through the waves of market volatility can lead to long-term financial success.

About the author 

Jack Marbida is a husband to his wife Wene and a father of 2 little boys Isaac and Israel, he is a financial advisor, speaker, and writer who helps families be financially stable and grow their relationships. He works with families to help them reach their goals by teaching them about financial literacy and helping them develop a healthy relationship with money.

He has been featured in Sun Life Financials and others for his work as a financial coach. He is also the founder of Online Advisors Financial Education, which provides free educational content through blogs and videos.

Jack speaks at conferences across the Philippines on topics such as family finances, and personal and professional growth.  

You can contact Jack Marbida through his social media accounts or email him at papajackph@gmail.com.

Cheers!