Set it and forget it?

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Finally, investing is fun again. The stock market is up more than 100 percent over the last four years. Bonds continue their 30-year record of positive returns. Gold’s been on a long winning streak and real estate is back on the rise. As the good times just keep rolling along, is it time to “set it and forget it” with your portfolio’s asset allocation?

Absolutely not. Leaving your portfolio unattended is as dangerous an idea in good markets as it is in bad.

You will thank yourself, and so will your heirs

Research demonstrates that asset allocation – how your money is distributed over different kinds of stocks, bonds, and alternative investments – is the prime determinant of portfolio performance.  And as we discussed last week, even small changes in annual return can have a huge impact over the long term.

These facts taken together have a couple critical implications:

  • Your asset allocation should be carefully set based on your long term financial goals and tolerance for risk.
  • Letting your allocation stray from the target can result in a portfolio that behaves far differently over time.
  • As assets appreciate at different rates it will be essential to rebalance periodically to maintain your target allocation.
  • When your personal, family or professional situation changes, you should revisit your allocation with your advisor and adjust accordingly.

Your “safe and sound number”

So what’s an appropriate asset allocation? Some investment advisors base allocations on rules of thumb that may or may not have anything to do with your own situation or goals. At Osbon Capital, we calculate.

For any individual there is a compound rate of return that allows one to go from A to B over time, while doing things like providing income, funding retirement, paying for college, allowing peace of mind, and many others. Think of it as your safe and sound number.

We use the power of Windham Capital software and its extensive cash flow modeling tools to calculate that compound rate of return, incorporating projected contributions, withdrawals, allowances for emergencies, gifts, and so on.  Based on your goals and expected cash flow needs (which we can set as fixed amounts, percentages, or variable over time), the Windham model determines that safe and sound number.

Set it and protect it

Once you identify the desired long-term return it is your portfolio manager’s responsibility to build and maintain an asset allocation capable of achieving it, taking no more risk than is necessary.  Again, this is where Windham excels, with its vast database and powerful analytics (“my own eight PhD’s,” I call them).

We never expect to hit that target rate of return in any given year. Markets are too volatile. But over decades, maintaining the prescribed asset allocation provides the best chance of achieving the desired annualized return. That means careful rebalancing and strict attention to diversification, cost control and tax efficiency. In other words, set it and protect it.


This article may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.

Nothing in this article is intended to be or should be construed as individualized investment advice. All content is of a general nature. Individual investors should consult their investment adviser, accountant, and/or attorney for specifically tailored advice.

Any references to third-party data or opinions are listed for informational purposes only and have not been verified for accuracy by the Adviser. Adviser does not endorse the statements, services or performance of any third-party vendor without specifically assessing the suitability of a third-party to a client’s or a prospective client’s needs and objectives.

Any performance numbers are for illustrative purposes only and are not indicative of Adviser’s past performance.

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