Given it’s the middle of summer, I wanted to put together a quick actionable for you to take today. I’m calling it the 5 minute summer portfolio jumpstart. The goal of this quick exercise is to jumpstart your portfolio and make sure that you’re on the right track.
For today’s jumpstart, I wanted to tackle asset allocation. Why is this so important right now? Well, the stock market is at record highs. When that happens, most people’s portfolio allocations typically get really out of whack. You’ve probably had some really awesome performing stocks that have skyrocketed, but others haven’t. You need to balance.
Asset allocation is all about balance, and your goal should be to maintain proper balance as much as possible. With stocks so high right now, it makes sense to sell some winners and invest in something more protective.
What Is Asset Allocation and Why It Matters
We’ve covered asset allocation in depth, so I don’t want to get into it too much. Instead, check out this article on Asset Allocation Basics. If you know what asset allocation is, but don’t know what your proper allocation should be, check out this one: Building the Perfect Portfolio.
Asset allocation matters now, more than ever, because you want to lock in the gains you’ve made in the stock market and protect yourself in case the market pulls back or drops. Let’s say you want to maintain a target of 50% stocks and 50% bonds. Well, stocks have been growing a lot and bonds haven’t. I bet if you checked your portfolio, you’d find yourself more like 65% stocks and 35% bonds.
To maintain proper asset allocation, you want to sell 15% of your stocks and invest it in bonds. That way, your total portfolio balance is more protected in case the stock prices drop. This is investing for the long run.
Your Summer Portfolio Jumpstart Action Plan
So, you 5 minute action plan right now is simple:
2. Look for any areas that you’re over allocated and under-allocated
3. Sell sectors where you’re over allocated and invest this in areas where you need to have more
4. Set a calendar reminder to check you asset allocation again on December 1
Once again, this will take less than five minutes if you’re organized. If you’re not organized, check out Personal Capital, which is a free online financial organizer that has a lot of other perks as well.
When you looked at your portfolio, was your asset allocation on point or did stocks grow a lot this quarter?