Retired Investors Alert | Event-based Portfolio Management

Retired Investors Alert | Event-based Portfolio Management

Retired Investors Alert | Event-based Portfolio Management

If you are retired or near retirement, then your number one priority when it comes to how your investments are managed has to be preventing significant losses.This is where Event-Based Portfolio Management can help.

In a previous article I explained the importance of real-time portfolio management as one important factor in minimizing losses.

In this article I will explain the importance of allocation and other portfolio decisions being based on events as opposed to some pre-defined calendar schedule.

Event-based portfolio management means that adjustments in each client account are driven by events as they happen as opposed to some arbitrary calendar-based schedule

Examples of events that could trigger portfolio adjustments include a change in the perceived direction of interest rates, the rate of inflation, consumer spending, valuation and economic and tax policies.

In other words, any event that impacts the risk metrics associated with the holdings in the portfolio.

Traditional advisors (and even many mutual funds) use calendar-driven schedules for processes like portfolio rebalancing. For instance, they determine an allocation between different stock sectors and then they rebalance to that allocation on a quarterly basis.

So, regardless of what is happening in the market they arbitrarily make the buys and sells necessary to bring the actual portfolio back to its target allocation percentages.

I think we all recognize the importance of adjusting allocation percentages, but the issue is HOW that should be done.

Why does the Wall Street System choose to follow a calendar-based model for so many of the portfolio decisions they make? Because it is easier for them.

That doesn’t make any sense to me because it is in the clients best interest for the allocation changes to be made based on events as opposed to some pre-defined calendar date. For instance, when the Federal Reserve came out on May 5th, 2013 and announced they were planning to start tapering their bond purchases, the markets started to react.

The value of bonds fell in anticipation of higher interest rates and the stock market began an accelerated uptrend.

That event was the basis for my decision to reallocate my clients’ portfolios. You see, the risk associated with owning bonds rose considerably and the risk with owning stocks was reduced in my opinion.

So I implemented changes in the allocation of the accounts I manage based on the needs of each client, balancing their target rate of return and their tolerance for risk. Contrast that with the Wall Street System’s money managers that waited until the end of the quarter to implement that change.

That arbitrary calendar-based delay caused their clients to lose money.

Do you want your advisor to adjust your account allocation based on changes in events and the markets or do you want them to instead base it on an arbitrarily chosen calendar date?

Think back to 2008 when the stock market crashed. The Wall Street System advisors didn’t change their allocation until the end of the quarter—after many of the losses had already occurred.

Is that how you would want your retirement nest egg managed? I doubt it—so you decide—are you currently using the right advisor for you?

There are many days that no action is needed, but my job is to be here for when it is..

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