Objective information about retirement, financial planning and investments


8 Portfolio Rebalancing Tips


In light of the recent stock market volatility, it’s important to review your asset allocation and consider rebalancing your portfolio if needed. This post looks at some ways to implement a portfolio rebalancing strategy. Here are 8 portfolio rebalancing tips that you can use to help in this process.


Set a target asset allocation 

Your asset allocation should be an outgrowth of a target asset allocation from your financial plan and/or a written investment policy. This is the target asset allocation that should be used when rebalancing your portfolio. 

Establish a time frame to rebalance 

Ideally you are reviewing your portfolio and your investments on a regular basis. As part of this process you should incorporate a review of your asset allocation at a set interval. This might be semi-annually for example. I generally suggest no more frequently than quarterly. An exception would be after a precipitous move up or down in the markets.

Take a total portfolio view 

When rebalancing your portfolio take a total portfolio view. This includes taxable accounts as well as retirement accounts like an IRA or your 401(k). This approach allows you to be strategic and tax-efficient when rebalancing and ensures that you are not taking too little or too much risk on an overall basis.

Incorporate new money 

If you have new money to invest take a look at your asset allocation first and use these funds to shore up portions of your asset allocation that may be below their target allocation. A twist on this is to direct new 401(k) contributions to one or two funds in order to get your overall asset allocation back in balance. In this case you will need to take any use of your plan’s auto rebalancing feature into account as well. 

Use auto pilot 

For those with an employer sponsored retirement plan such as a 401(k), 403(b) or similar defined contribution plan many plans offer an auto-rebalancing feature. This allows you to select a time interval at which your account will be rebalanced back to the allocation that you select.

This serves two purposes. First it saves you from having to remember to do it. Second it takes the emotion and potential hesitation out of the decision to pare back on your winners and redistribute these funds to other holdings in your account.

I generally suggest using a six-month time frame and no more frequently than quarterly and no less than annually. Remember you can opt out or change the interval at any time you wish and you can rebalance your account between the set intervals if needed.

Make charitable contributions with appreciated assets 

If you are charitably inclined consider gifting shares of appreciated holdings in taxable accounts such as individual stocks, mutual funds and ETFs to charity as part of the rebalancing process. This allows you to forgo paying taxes on the capital gains and may provide a charitable tax deduction on the market value of the securities donated.

Most major custodians can help facilitate this and many charities are set-up to accept donations on this type. Make sure that you have held the security for at least a year and a day in order to get the maximum benefit if you able to itemize deductions. This is often associated with year-end planning but this is something that you can do at any point during the year.

Incorporate tax-loss harvesting

This is another tactic that is often associated with year-end planning but one that can be implemented throughout the year. Tax-loss harvesting involves selling holdings with an unrealized loss in order to realize that loss for tax purposes.

You might periodically look at holdings with an unrealized loss and sell some of them off as part of the rebalancing process. Note I only suggest taking a tax loss if makes sense from an investment standpoint, it is not a good idea to “let the tax tail wag the investment dog.”

Be sure that you are aware of and abide by the wash sale rules that pertain to realizing and deducting tax losses.

Don’t think you are smarter than the market 

It’s tough to sell winners and then invest that money back into portions of your portfolio that haven’t done as well. However, portfolio rebalancing is part of a disciplined investment process.  It can be tempting to let your winners run, but too much of this can skew your allocation too far in the direction of stocks and increase your downside risk.

If you think you can outsmart the market, trust me you can’t. How devastating can the impact of being wrong be? Just ask those who bought into the mantra “…it’s different this time…” before the Dot Com bubble burst or just before the stock market debacle of the last recession.

The Bottom Line 

Portfolio rebalancing is a key strategy to control the risk of your investment portfolio. It is important that you review your portfolio for potential rebalancing opportunities at set intervals and that you have the discipline to follow through and execute if needed. These 8 portfolio rebalancing tips can help.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if it’s right for you. Financial coaching focuses on providing education and mentoring on the financial transition to retirement.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

4 Things To Do When The Stock Market Drops


Update February 24, 2020 approximately 6:00 p.m. – the market closed today with the Dow losing almost 1,032 points or 3.6%. This was the third time in history that the index declined 1,000 or more points in a single day. This is the worst single day loss for the index in both points and percentage decline since February 8, 2018. The S&P 500 lost about 3.4% today. For both indexes today’s losses erased their gains for 2020 to date.

This morning as I update this, the stock market is appears poised to take a hit prior to the open. The Dow’s pre-market implied open is down over 730 points. This seems to be largely due to fears about the possible spread of the Coronavirus from China. Of course nobody knows where the market is headed. What should you do now? Here are 4 things to do when the stock market drops.

4 Things to do When the Stock Market Drops


Cable news networks like CNBC have a field day during steep, sudden stock market corrections like we will likely see today. It’s easy to get caught up in all of this hype. Don’t let yourself be sucked in.

Step back, take a deep breath and relax.

Take stock of where you are 

Review your accounts and assess the extent of the damage that has been done. Investors who are well-diversified may be hurt but generally not to the extent of those who highly allocated to stocks.

Review your asset allocation 

With the tremendous year for stocks in 2019 and so far in 2020, many investors are likely still in a good position. If you haven’t done so recently, then perhaps it is time to review your asset allocation and make some adjustments. Proper diversification is great way to reduce investment risk. This is a good time to rebalance your portfolio back to your target asset allocation if needed as well.

Go shopping 

Market declines can create buying opportunities. If you have some individual stocks, ETFs or mutual funds on your “wish list” this is the time to start looking at them with an eye towards buying at some point. It is unrealistic to assume you will be able to buy at the very bottom so don’t worry about that.

Before making any investment be sure that it fits your strategy and your financial plan. Also make sure the investment is still a solid long-term holding and that it is not cheap for reasons other than general market conditions.

The Bottom Line 

Steep and sudden stock market declines can be unnerving. Don’t panic and don’t let yourself get caught up in all of the media hype. Stick to your plan, review your holdings and make some adjustments if needed. Nobody knows where the markets are headed but those who make investment decisions driven by fear usually regret it.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you. Financial coaching focuses on providing education and mentoring regarding the financial transition to retirement.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

Avoid these 9 Investing Mistakes


Investing is at best a risky proposition and sometimes even the best investment ideas don’t work out. However avoiding these 9 mistakes can help improve your investing outcomes.

Avoid these 9 Investing Mistakes

Inability to take a loss and move on 

It’s difficult for many investors to sell an investment at a loss. Often they prefer to wait until the investment at least gets back to a break-even level. I think its part of our competitive nature. Investing is not a competitive sport, leave that for our Olympians.  When reviewing your investments ask yourself “Would I buy this holding today?” If the answer is no, it’s time to sell and invest the proceeds elsewhere.

Not selling winners

I’ve seen many investors over the years refuse to sell highly appreciated holdings, all or in part. There is always the risk that you’ll sell and the price will keep going up. But sometimes it’s best to protect your gains and sell while you’re ahead or at least consider selling a portion of the holding and reinvesting the proceeds elsewhere. The latter can be part of your portfolio rebalancing process.

Investing without a plan

When you take a road trip in your car you generally have a map to help you to get to your destination. Investing is a means to an end, a road map to achieve your goals such as providing a college education for your children or funding your retirement.

Without a financial plan how will you know how much you need to accumulate to achieve your goals?  How much risk should you take?  What types of returns do you need to shoot for? Are on track toward your goals?  Essentially investing without a plan is much like hopping in the car without any idea where you are headed. 

Trying to time the market

It’s difficult to predict when the market will rise and fall. Even if the stock market is following a general trend, there will be up and down trading days. Trying to buy and sell based on those daily fluctuations is difficult. While there are professional traders who do this for a living, for most of us this is a losing proposition.

Worrying too much about taxes

Taxes can consume a significant portion of your investment gains for holdings in a taxable account. While nobody wants to pay more tax than needed, in my opinion paying taxes on a gain is almost always better than dealing with an investment loss.

Not paying attention to your investments

Your portfolio needs to be evaluated and monitored on a periodic basis.  You should reevaluate a stock when the company changes management, when the company is acquired by or merges with another company, when a strong competitor enters the market, or when several top executives sell large blocks of stock.

This applies to mutual funds as well. Manager changes, a dramatic increase or decrease in assets under management or a deviation from its stated style should all be red flags that cause you to evaluate whether it may be time to sell the fund.

Failure to rebalance your holdings  

This goes hand in hand with having a financial plan. Ideally you have an investment policy for your portfolio that defines the percentage allocations of your investments by type and style (stocks, bonds, cash, large stocks, international stocks, etc.).  A typical investment policy will set a target percentage with upper and lower percentage ranges for each style. It is important that you look at your overall portfolio in terms of these percentages at least annually.

Different investment styles will perform differently at various times.  This can cause your portfolio to be out of balance. The idea behind rebalancing is to control risk. If stocks rally and your equity allocation has grown to 75% vs. your target of 60% your portfolio is now taking more risk than you had planned. Should stocks reverse course, you could be exposed to over-sized losses.

Assuming recent events will continue into the future 

The first 15 plus years of this century have been tough on investors. The market tumbled during the 2000-2002 time frame and then again in 2008-2009. More recently the stock market dropped steeply and suddenly in the wake of the Bexit vote in the U.K. These events have instilled fear into many investors. It’s hard to blame them.

However this fear and the assumption that recent events will continue into the future might also be keeping you from investing in the fashion needed to achieve your financial goals. Taking the events of recent years into account is healthy, however letting these events paralyze you can be destructive to your financial future. This holds true for stock market drops as well as protracted bull markets.

Building a collection of investments instead of a well-crafted portfolio

Are you investing with a plan or do you simply own a collection of investments?  Great football teams like my beloved Green Bay Packers have a better chance of winning when everyone embraces and executes their role in the game plan for that week.  In my experience you will increase your chances for investment success when all of the holdings in your portfolio fulfill their role as well.

Nothing guarantees investment success.  Avoiding these 9 investing mistakes as well as others can help you increase your odds of being a successful investor.

Concerned about stock market volatility? Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

NEW SERVICE – Financial Coaching. Check out this new service to see if its right for you. Financial coaching focuses on providing education and mentoring in two areas: the financial transition to retirement or small business financial coaching.

FINANCIAL WRITING. Check out my freelance financial writing services including my ghostwriting services for financial advisors.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.

My Fearless 2014 Investing Forecast


With the start of a new year, there is no shortage of forecasts about almost everything under the sun.  Forecasts about the economy and the financial markets abound throughout the financial news media and on the various cable financial news shows.  Here is my fearless and guaranteed to be accurate 2014 stock market forecast.

English: Dartboard with darts. Suomi: Tikkataulu.

As the top financial officer of one of my retirement plan sponsor clients predicts at the start of each year, I can say with 100% confidence that the stock market as a whole and the various market benchmarks will finish 2014 either higher, lower, or unchanged when compared with the levels at the end of 2013.

Further I will make the same prediction for your overall portfolio and for each of the individual investments you hold including mutual funds, ETFs, individual stocks, bonds, closed-end funds, and all other investment vehicles.

Forecasts are fun, but at the end of the day the performance of the financial markets and your individual holdings is beyond your control.  While the details underlying some of these forecasts are worth reading, as investors we need to focus on the factors that we can control versus worrying about what the market will or won’t do.

Investment expenses 

Morningstar, the PBS Frontline program The Retirement Gamble, and many other sources have highlighted the negative impact that high cost investments can have on your returns and the amount you accumulate for retirement and other goals.

Investment expenses can include:

  • Expense ratios on mutual funds, ETFs, closed-end funds, and variable annuities.
  • Transaction costs to buy or sell investment vehicles, this also includes front and back-end sales charges on mutual funds and annuities.
  • Expenses for investment advice.

Like anything else you want to keep these expenses as reasonable as possible and be sure that you are receiving appropriate value for any expenses incurred.

Portfolio risk 

While many of the pundits are saying stocks are undervalued, with the Dow, the S&P 500, and other market benchmarks at or near record highs the markets are inherently more risky.

For example the S&P 500 had its best year since 1997.  Even after big gains in 1997 the index had solid years in 1998 and 1998 before the Dot Com bubble and subsequent decline from mid 2000 thru most of 2002.  The markets may well continue on this pace in 2014 and beyond, but at some point we will see a correction.  Don’t become overconfident or complacent.

A good way to keep portfolio risk in check is to periodically rebalance your portfolio.  This is very important in a rising market like this one where your equity allocation can quickly exceed your desired allocation.

Along these same lines make sure that your portfolio is diversified.  This does not mean owning a large number of individual holdings but rather having some portfolio holdings whose performance is not closely correlated to the rest of portfolio.

Invest with a plan in mind 

Perhaps the most important investing element under your control is having a financial plan in place.  My biggest beef with “financial advisors” who focus on selling financial products is that they seem to lead with a sales pitch rather than with a financial plan.

Regular readers of this blog know that I am an advocate of an investing strategy that is an outgrowth of your financial plan.  I view investing as a vehicle to achieve your financial and life goals such as funding college for your kids and retirement.  How can you invest in a fashion that supports your goals and is appropriate for your time frame to achieve these goals and your risk tolerance without a financial plan in place?

A look at some famous market forecasters 

As long as I can remember there have been people forecasting what will happen in the financial markets.  Here are a few of the more colorful and noteworthy of this group:

Joe Granville was a well-known market forecaster of the 1970s, 1980s, and 1990s.  He published a popular newsletter, The Granville Market Letter, which had a notoriously poor track record.  He was also quite entertaining.  I had the occasion to see his “show” circa 1980 or ’81 as a graduate student at Milwaukee’s Marquette University.  All I recall is Granville playing the piano in his suit and boxer shorts on stage at a local movie theater.  Mr. Granville died in 2013, rest in peace Joe.  Check out this excellent piece about Granville by Mark Hulbert on Market Watch Four lessons Joe Granville taught us.

Elaine Garzarelli was an analyst with Shearson Lehman when she successfully called the 1987 market crash.  She was subsequently fired from the firm in the mid 90s after the firm cited the high cost of her research operation.  Ms. Garzerelli was a top-notch research analyst who became a bit of celebrity, even serving as a pitchwoman for pantyhose in a TV commercial.  Her call on the markets in 1987 is what launched her career and she is a true “one hit wonder.”

Meredith Whitney made a famous call about impending doom and gloom in the municipal bond market in an interview with 60 Minutes in late 2010.  Guess what, outside of the Detroit bankruptcy her prediction was pretty much a bust.  This hasn’t stopped the likes of CNBC from featuring here as a frequent guest expert. Barry Ritholz summed it up very nicely in this post Meredith Whitney, 2011 Winner, Elaine Garzarelli One-Hit Wonder Award on his excellent blog The Big Picture.

I’m not dismissing market forecasts out of hand; much of the research and analysis behind these forecasts is interesting and valuable to investors.  However at the end of the day investing is about you, your goals, and your tolerance for risk.  Control the factors that you can control and don’t lose a lot of sleep worrying about the factors you can’t control.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your financial planning and investing questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

Photo credit:  Wikipedia

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Trading vs. Investing – Which Do You Do?

Better in the Dark

This is a guest post from Robert Farrington at The College Investor.  He seeks to help young adults and college students get started investing, and has a great Investing 101 resource.  Though Robert’s audience is a bit younger than many of the readers of this blog his insights are useful to investors of all ages and experience levels in my opinion. 

When you describe yourself and your financial future, do you see yourself as a trader or an investor?  Did you know there was a difference? It’s true, they are often used interchangeably, but they are quite different.   And knowing yourself and the difference between the two can help you understand where you’ll be successful in the future.

Trading is Different From Investing 

Trading and investing have a major difference, and that difference has to do with time. If you are trying to multiply your money over the course of 30 or 40 years, then you are most likely investing. If, however, you are interested in buying a stock today and selling it tomorrow if it jumps a point or two, then you are almost certainly a trader, and not an investor. Trading is often a very short term action, while investing is performed over the long term.

While the terms are quite different, one can perform a trade while still being an investor. For instance, if you have a 401(k) account that isn’t performing as well as you’d like, you might decide to change your overall investment strategy and you would do this by making some trades. You would sell off the shares that no longer matched your investment plan and then you would purchase some new ones that do. With this, you would be trading in order to fulfill the long-range goals of your overall investment plan.

Give Into Temptation 

I think there’s a little piece in all of us that is intrigued by risk and excitement. This is why some people like to skydive and others like to swim with sharks. Still others love the thrill of a short-term trade built mostly on speculation.

We all have our investments, but you know what? Nobody talks about them. Why is that? Because they’re boring. What would we say? Something like, “My portfolio increased by 5.6% last year…” And that would most likely be the end of the conversation. But, what if you decided to make some trades and possibly make some short term cash? You story would turn into, “I evaluated the economy and I realized that this particular stock was undervalued, so I bought 100 shares and they just skyrocketed! I made $1,000 in just a couple of days.”

Because there’s a little need for risk and adventure in all of us, I say give into your temptation….in moderation. You definitely should not risk your entire investment portfolio, but feel free to use a small portion (something like 5%) and trade it as you wish. This will ensure that 95% of your portfolio stays safe within your planned strategy, but yet you can still have some fun with the 5% by making trades and taking a few risks here and there.

Making Trades

If you do decide to take a little risk and make some trades, there are a few basics you should know. First of all, most every trade carries a fee. So, if you sell a stock to make $5, but the trading fees were $10, then you actually just lost money.

Secondly, decide which trading method is right for you. Are you a fundamentalist or a technical trader? Meaning, do you trade based on the movement of the share price or are you making trades because of a certain ratio (like the debt-to-equity ratio, etc.)? Find out what makes sense for you and have a good time.

If you plan on trading at all, you need a strategy, and you need to stick to it.  Just like investing!  Invest in what you know, but also trade in what you know as well.  If you are interested in trading in a certain area of the market, say currencies, but aren’t knowledgeable step back, take an investing course, read up, and maybe use a practice account before you go for it with real money.

Final Thoughts

For some people, trading can be fun, but it’s just too much uncertainty and risk.  Just know that it’s not for everyone. If you aren’t comfortable with it, then don’t do it. But, if you feel like it won’t take over your life then maybe you want to give it a shot. Happy investing!

This was a guest post from Robert Farrington, from The College Investor.  He seeks to help young adults and college students get started investing, and has a great Investing 101 resource.  

Please feel free to contact me with your investing and financial planning questions.  Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.   

Please check out our Resources page for links to some additional tools and services that might be beneficial to you.  

 Photo credit:  Wikipedia

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A Look Back


I have been blogging for a bit over three years now.  This has been a great outlet for my love of writing.  Working as a

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financial advisor is about the best “job” one could have and I feel fortunate to be able to share what I’ve learned over the years with you.

Just as I often review the assumptions that I use in choosing investments to recommend to my clients, I thought it would be interesting to take a look back at a few of the prior posts on this blog and to update the underlying situations.

2010 The Year of the Fiduciary? 

Well 2010; 2011; and 2012 have come and will soon all be in the books without a uniform Fiduciary Standard that must be followed by all financial advisors dealing with the investing public.  I’ve read that this will be a top item for consideration among the regulators in 2013.  I hope this is the case.  One definition of Fiduciary:

fi•du•ci•ar•y – A financial advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a Fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how the financial advisor is to be compensated and any corresponding conflicts of interest. 

I think this is the right way for all financial advisors to treat their clients; some very deep pockets in the financial services industry disagree.  

Is Your Financial Advisor Like a Replacement Ref?

I wrote this on September 26th of this year two days after the infamous Monday night game where the replacement refs robbed my beloved Green Bay Packers on a blown call at the end of the game in Seattle.  This was the game that brought the NFL referee lockout to an end.  Since then the Packers have won 7 of their last 8 games and stand atop the NFC North, Seattle has also had a good season and stands a 8-5 and are in the playoff hunt.  Nothing in this update about finance but I have been a lifelong NFL and Green Bay Packer fan.

Lessons From the Groupon and Facebook IPOs

Since writing this shares of Facebook have risen to over $27 per share from just under $18 when I wrote this post in early September of this year.  This is still far below the $38 IPO price in May, but the stock appears to be in the midst of a rally.  Time will tell how the company fares as a publically traded entity.

Groupon went public at $20 per share in late 2011.  The stock currently sits around $4.25 per share almost the same price as when I wrote this post in September.  Since then there has been some excitement as at least one hedge fund has purchased shares and the Board retained founder Andrew Mason as the company’s CEO amid speculation that they had considered replacing him.  Lastly there were some rumors that Google, a former suitor, was once again interested in acquiring the company at what would be a bargain price compared to their last offer.  I fail to understand the economics of the daily deal “industry” and view this IPO as nothing more than a payday for the founders and the investment bankers.

That Nice Man at Church Wants to Sell Me a ….

Since writing this post in January of 2011, Bernard Madoff remains in jail, one of his sons committed suicide by hanging himself in his apartment, and four years after Madoff’s arrest the trustee assigned to try to recover assets has recovered about half of the $17.5 billion that investors lost.

In the interim another famous Ponzi schemer Alan Stanford has been convicted and imprisoned.  Sadly financial fraud, including affinity fraud, is still rampant and all investors need to protect themselves.

Risk, Reward, and Peyton Manning

When I wrote this post in March the Colts had just waived Manning rather than pay him the $28 million due him at the time.  Seemed like a reasonable bet at the time given that he was coming off of neck surgery and had missed the entire 2011 season.

Peyton ended up in Denver and has the Broncos on the cusp of the playoffs with 10 wins as I write this.

Meanwhile the Colts took Stanford’s Andrew Luck as the first overall pick in the draft and he has performed beyond expectations.  He has the Colts in the playoff hunt after the team won only 2 games during 2011.  Further the team has rallied in the face of adversity with their coach being forced off the sidelines to battle leukemia.  Thankfully he is in remission.

Overall a win-win for both teams, both teams are so far being rewarded for the investments they made in Manning and Luck.

Just as with these blog posts, it’s a good idea to revisit your reasons for making financial and investment decisions to see if things panned out as you had thought at the time.  This is not to second guess yourself, but rather to reexamine your assumptions to see if you need to adjust your decision making process in the future. 

As always please feel free to contact me with your financial planning questions.

Photo credit:  Wikipedia

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Risk, Reward, and Peyton Manning

Peyton Manning

Ok this is what you get for reading a blog written by a financial advisor who is also a pro football fanatic. Peyton Manning is a certain Hall of Famer and undoubtedly one of the true “class acts” in the world of professional sports. The decision by the Colts to release him and the sweepstakes to sign him by a reported 12 NFL teams provides some great examples of assessing risk and reward that are applicable to investing as well.

Know when to cut your losses. No matter what the Colt’s owners might say, the decision was in large part driven by the $28 million bonus due to Peyton on March 8. Couple this with his uncertain health, the fact that the Colts have the top pick in the upcoming draft, and the fact that they are clearly in rebuilding mode and you have a classic decision by the Colts to cut their losses and move on. Investors need to have this mentality in viewing their investments as well. Let’s say you buy a promising stock. It’s now down 15%. Do you hang on or do you sell and cut your losses? The answer lies in your assessment of the potential upside of holding the stock. If you still feel the stock has the same upside as when you bought it keep it, if you feel the money could better be deployed elsewhere, sell. In the case of the Colts they clearly feel that Andrew Luck is better investment going forward than is Peyton Manning.

Always assess the downside risk and the upside potential of your portfolio. Investing, in my opinion is about the level of risk you assume first, then about the potential upside. For the teams bidding on Manning the expected upside is a trip to the Super Bowl. There are any number of teams that are a top-flight quarterback away from a deep playoff run. What’s the downside? First if Manning can’t play or play at a level near what he has shown throughout his career they’ve spent a lot of money (I don’t expect Manning to come cheap) without reaping the hoped for reward. The other downside risk is that a developing young quarterback (Tim Tebow, Mark Sanchez, Matt Schaub, etc.) finds their career derailed and never develops into the long-term star their teams expect.

Is the risk worth the potential reward? This is a question all investors should ask on a continuous basis about the configuration of their portfolio and about the individual holdings within their portfolio. In the case of Peyton Manning my question is why would this guy ever set foot on a football field again? I’m not a doctor, but 3 or 4 neck surgeries would be more than enough to tell me that I don’t want to take the risk of serious injury that could undoubtedly occur from being hit by a 300 pound defensive lineman. I just don’t see any potential upside for him that would be worth the risk of serious injury. As a fan I hope that we have seen Peyton play for the last time, for his sake and the sake of his family.

Feel free to contact me if you need help reviewing your portfolio to determine if you have the right risk/reward balance.

Photo credit:  Flickr

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I Just Want to Break-Even Before Selling


As a financial advisor this sentiment is one of the most frustrating things I have encountered over the years. Generally this is expressed by in connection with individual stocks. Many investors are reluctant to book a loss on a holding until the price recovers to the point where they have at least broken even.

Some investors are just incapable of admitting that they made a poor investment choice. This mindset can be a roadblock to investment and financial success.

I typically ask whether they would make this investment today. What happened in the past is irrelevant. The only consideration is your estimate of how this holding will perform going forward.

There is a huge potential opportunity cost of holding on until your investment breaks even. Could you have deployed these dollars elsewhere and earned a better return by booking the loss and moving on?

I generally subscribe to the use of an overall asset allocation for clients built from their financial plan. But that said, each investment holding needs to have a role in the portfolio. If the reason for keeping a particular holding in the portfolio changes I suggest eliminating or reducing that holding to my client.

Overall my message is that individual holdings are irrelevant. What matters is the overall portfolio and how that portfolio is performing relative to the client’s risk tolerance and relative to the financial goals that it is designed to fund.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.