Steps to Secure Your Portfolio in Uncertain Times

By Clark M. Blackman

The science of investing uses proven principles based on historical data and research, allowing you to create a portfolio using reasonable estimates for long-term expected risk and return characteristics and make long-term investment decisions (keeping in mind that there are never absolutes in predicting outcomes).

But, as Clark Blackman explains in “The Art of Creating an Investment Policy Statement,” there is also a very personal element to creating an appropriate investment strategy that must be considered if you are to be happy with the outcome. The need to sleep at night requires the skillful blending of the right ingredients to get the balance you need to feel confident that you have the right strategy to reduce the risk of failing to meet your goals. That is where the art of investment planning comes in.

Blackman takes you through the steps of creating an investment policy statement that is geared to your goals, showing you how to set specific parameters for these factors:

• What you will invest in—i.e., stocks, bonds, exchange-traded funds (ETFs), mutual funds, real estate, hedge funds, etc.;
• The criteria used for evaluating and monitoring overall, and manager/fund, performance;
• Your return expectations;
• The level of volatility and other risks deemed acceptable to you; and
• Your time horizon.

Find out how to best mingle investing art with science to build an investment plan that works for you.

By Charles Rotblut, CFA

Periodic rebalancing of a portfolio using pre-specified thresholds can coincide with big market moves. AAII Journal editor Charles Rotblut has been conducting an ongoing analysis of the effects of rebalancing on hypothetical 70% stock/30% bond portfolios of Vanguard funds. Recently, one of Rotblut’s rebalancing models issued a signal to adjust portfolio allocations back to their target levels. This was the first rebalancing signal since the end of 2013.

Find out what triggered the rebalancing signal and how Rotblut’s models have performed compared to each other since he started tracking them in 2011.

Rebalancing is designed to reduce risk by keeping a portfolio’s allocation from going too far astray. By bringing the portfolio back to its target allocation, the benefits of the allocation strategy are realized over the long term. Not rebalancing can lead to an allocation that looks nothing like the investor originally intended. Learn about rebalancing and its effects by reading “Rebalancing Update: First Signal in Six Years to Adjust Allocations Issued.”