Allocate, Rebalance, Reduce! A Primer for a Profitable Portfolio

Donna St.Amant, MBA, Portfolio Manager.

The stock market often takes investors on a wild ride. As such, it is a good idea to be reminded of three basic principles in investing.  Asset allocation, rebalancing and lowering costs. Using these timeless principles to guide investment decisions will keep your portfolio on track and enhance returns over the long haul.

Asset Allocation

Set goals!  It is important to have a plan. It keeps investors focused, encourages more saving and guides investors to make better decisions. Part of that goal is to set an asset allocation. This should be determined by looking at ones risk tolerance, age, overall wealth, cash flow needs and the timing of those needs. A balanced account, which is considered conservative, would be 50/50. 50% of the nest egg is held in stocks and 50% in bonds and cash. A young person just starting out may have a 100% allocation to stocks because they have many years of savings ahead of them and have a long term horizon in the markets. Most investors seem to fall somewhere in between in the 60%-80% range.  

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After establishing an asset allocation target, build a diversified portfolio. On a broad scale, diversify stock holdings with bonds and some cash. Within those categories include some international exposure. If truly diversified, it is likely that there will always be a sector among the holdings that will be out of favor. Modest losses are to be expected in any portfolio, but significant losses can take up to years to recoup. For this reason limit exposure to any individual security to 2% of the portfolio.

Rebalance Regularly

To rebalance investments buy and or sell securities in the portfolio to reset the allocation back to the intended target.  Rebalancing requires discipline. It is not easy to sell the winners and add to sectors or securities that are out of favor, but it is how you increase the chances of generating a higher return. Buying out of favor means you are more likely to be buying at the lows. Alternatively, chasing past performers is not a profitable strategy. Over time, through numerous market cycles, a rebalanced portfolio should outperform with less risk.

Reduce Costs

Market fluctuations cannot be controlled, but the cost of maintaining investments can be. Keep these costs down by reducing taxes and minimizing fees. Hold investments for more than a year, and take advantage of lower capital gains rates on stocks by holding the majority of equities in taxable accounts.  Interest payments on taxable bonds are taxed at ordinary income rates so best to concentrate these holdings in tax-sheltered accounts such as an IRA. Look to add municipal bonds to a taxable account to reduce taxes paid on bond interest. When rebalancing in a taxable account, an investor may need to sell stock because the overall stock portfolio has outperformed and stocks have increased over the targeted allocation.  Yet within the portfolio, there are likely stocks that are at a loss. Choose to sell those stocks first to avoid triggering capital gains. Any losses realized can also be harvested and used to offset any future gains that may be generated in the portfolio.  

Fees can chip away at your returns over time. Manage transactions costs by limiting excessive trading. Use index funds to supplement your stock holdings as a source of liquidity. To evaluate performance accurately, make sure to look at net returns.  

These are three commonly known principles that are easily ignored. Get back to basics, reduce risk and boost overall returns.  

Note: Donna St.Amant, MBA, is a Portfolio Manager at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit.

CNBC has named Point View to its list of the top 100 fee-only wealth managers in America! See

Point View Wealth Management, Inc. works with families in Summit and beyond, providing customized portfolio management services and comprehensive financial planning, to develop and achieve their financial goals. We are independent and fee only.  How can we help you? Contact David Dietze (, Claire Toth (, or Donna St.Amant ( or call (908) 598-1717 to learn how.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of or anyone who works for is not responsible for the accuracy of any of the information supplied by the writer.

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