|
J.C. HOOD INVESTMENT COUNSEL
INC. |
Hello Everyone:
The Concept Behind Rebalancing Your Portfolio. As you know, we sold off some of our U.S. holdings last month as well as some of our underperforming assets to counter the tax gains on the U.S. position. This was only done in some of our older accounts (over 2 years) that had large gains in XSP (CDN$ hedged version of S&P 500). I briefly explained that what we were trying to accomplish was to bring the asset allocation of the portfolio back to its original asset mix. In most accounts this represented about 7-10% of the overall portfolio.
There was a recent article in the Globe and Mail (Aug.22) by Tim Shufelt that expanded on this topic and why it is important for investors. To an extent, it is counterintuitive to investors to be selling some of their winners.
“The fear of missing out can be a powerful disincentive” claimed Shufelt. “As the bull market stretches on and the memories of the proceeding correction fade, faith in equities builds.” The problem of course is that being overweight equities makes investors increasingly vulnerable to volatility, and most destructively, the panic driven tendency to sell when prices have dropped. It’s the curse of undue optimism in the marketplace, buy high and sell low. “Rebalancing can go a long way to correcting that behavior” either by “rebalancing periodically or after a predetermined amount of stock appreciation.” At this firm, we do both that is a quarterly review of asset allocation and sometimes a review based upon the gains in an individual asset like the XSP.
I should mention that earlier this week, I did an interview for Shufelt’s column on ETFs. What I chose were Vanguards broad-based V V which is in virtually all of our portfolios, XEI which is a CDN dividend ETF and BMO covered call ETFs ZWB (banks) ZWA (Dow) and the newer ZWH (S&P dividends) which you are all familiar with. I will be on BNN, Tuesday, Sept. 2 at 1:00 p.m.
Your Portfolio. Technical/seasonal analysis suggests that September can be a nasty month for investors, which is yet another reason to be prudent. We continue to hold our basic asset allocation which is predicated on a continuing U.S. recovery with a commodity heavy Canadian market being dragged along with it.
Thank you for your business.
John
P.S. If you wish to unsubscribe, please reply to this email with the word "unsubscribe" in the subject line.