It isn't really about the investments

September is always a busy month for financial advisors. Everyone has returned from those last vacations of the summer, kids are back in school and there is a general sense that it's time to get back to work. At this point in the year, we usually get a lot of interest from people who have steeled themselves to face the investment questions they have been putting off: should I own these bonds? Is this a good stock still? What about this mutual fund? Should I have bought this annuity? And over and over again, I find myself explaining that it isn't really about the investments. By which I mean that I can't answer any of your questions about whether an investment is "good" until you've answered some questions about what you are trying to do with it. And that's the really stuff part about buying, selling and managing investments. There are some truly crummy investments out there, but for the most part any given investment is "good" for somebody. It's just a question of whether that someone is you.

Let me give you an example. We invest most of our clients' money in a long list of stocks or index funds that are designed to move with different portions of the economy. A so-called U.S. "mid cap" index fund should reflect how well the stocks of our large (but not enormous) publicly traded companies are doing as a group. We like this type of index fund strategy because, historically, it has allowed investors to take advantage of the growth in U.S. markets over time (and it's relatively cheap to do!). But that growth in "mid cap" companies over time might require a long period of time—years, in fact. What if you might need that money three years from now? What if your investments are in a 401k that doesn't have a "mid cap" fund? Or, what if you know you are only going to look at your investments every couple of years? What if your job hinges on the health of these same "mid cap" companies? In all of these cases, I might recommend that you avoid one of my favorite investments. They can be just as bad for your strategy as they are great for someone else's.

I write this blog so that you can better understand the often intimidating world of investments and consumer finance. You need to financial understand the tools that are out there if you are going to make the most of what you have and what you earn. Never lose track, though, of the fact that these are tools. And just as the best drill in the world is a lousy tool for fixing your tv set, the best investment in the world could be exactly what your financial strategy doesn't need.

How To Rebalance Your Portfolio

If you have diversified your investments and come up with an allocation model, you know how you want your portfolio to look. Over time, though, some investments do better than others. Eventually, those stocks that were supposed to be 15% of your portfolio will end up closer to 20%. So what are the best tips for rebalancing when that happens? First, if you are regularly adding to your account, a patient strategy of shifting how you invest new money is your best approach. Each time you add money to your account, invest the new cash in one of the asset classes that is below your targets. One deposit may be enough, or you may need to continue adding to the below-target class for several months.  When that class is on target, switch your investing to another below-target class. Take your time; the balance does not have to be perfect so long as you are moving in the right direction.

If you are not regularly adding to your account, you will need to sell some of your holdings from an above-target asset to buy into the asset class that is below your target.

Notice that both approaches mean selling or passing on shares of your best performing stock or fund—the one you've been thrilled with—in order to invest more in the dud that's been disappointing you. It might feel like a mistake, but this effect is part of what makes asset allocation work. You will find that following your plan helps you avoid the trap of buying the stuff that has already peaked and forces you to purchase the low-performing investments before they start their own rise in market cycle.