PowerHouse Assets

In her book, “Smart Women Love Money”, Alice Finn shares 5 simple yet powerful rules of investing that cut through the unnecessarily complex jargon of Wall Street.

This week, we'll showcase the fourth of the 5 rules:

Rule #4. Rebalance Regularly:

In both US and non-US markets, there is little predictability in asset class performance from one year to the next. To see this, look below at what the investment industry calls “The Quilt” in which each asset class is represented by a different color.

As you can see, there is no predictable pattern in the quilt. Therefore, we do not try to “time the markets”. Instead, our asset allocation is worldwide and positioned to capture returns wherever they occur. To that end, we will periodically rebalance your portfolio by selling a portion of each of your relative winners and buying more of those asset classes that have not done as well.

Rebalancing your portfolio to maintain your target asset allocation is the most reliable way to ensure that you never end up betting too much on any single asset class or missing out on something that is about to start outperforming. And in effect, this is the best way to sell high and buy low, without much effort, to keep you on track toward your goals!

In her book, “Smart Women Love Money”, Alice Finn shares 5 simple yet powerful rules of investing that cut through the unnecessarily complex jargon of Wall Street.

This week, we'll showcase the third of the 5 rules:

Rule #3. Implement with Index Funds:

Our investment philosophy has always been rooted in a strong belief that security prices do a great job reflecting the aggregate expectations of what investors think will happen in the future. Each day, global markets process millions of trades worth hundreds of billions of dollars. This trading incorporates vast amounts of information into prices, driving them toward their fair value. For many decades, many investors have been trying to “beat the market” by picking the right stocks, or by trying to time the market. But in most cases, they have failed. That’s because markets react to surprises, and by definition, you cannot predict a surprise.

Extensive evidence, including in the chart below, shows that investors have a higher chance of success, better investment experience, and higher returns when they reject active management (trying to pick stocks or time the market). Therefore, for our clients, we implement a globally diversified portfolio with low-fee, tax-efficient index funds.