Are You Patching an Inner Tube in Your Investment Portfolio?

Are You Patching an Inner Tube in Your Investment Portfolio?
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During turbulent economic periods, it’s not unusual for investors to start wondering if they should add or subtract various asset classes to their portfolio mix. Here’s what’s driving this concern in their portfolio based on external factors.

  • Is the portfolio too aggressive? The economic environment makes them wonder if their portfolio could lose value.
  • Is the portfolio too conservative? The economic situation makes them anxious about missing out on potential gains.
  • Are they focusing on a specific asset class? They think this missing asset class — or one they want to drop — will enhance or fix some aspect of their portfolio.

 

These issues indicate a portfolio may not be properly structured to meet its objective. Outside factors should not affect a properly built portfolio. And changing investments based on economic timing is not fruitful.

 

Tweaking a portfolio midstream is like patching an inner tube — it’s a temporary fix until the next external issue arises.

 

[RELATED: More Financial Resources From MOAA]

 

To become insulated to the whims of external issues, you first must clearly define the objective of the portfolio. By defining the objective — and your strategy to meet the objective — you can build the portfolio’s asset allocation from the onset to meet the objective and anticipate whatever comes in the economy. There should be no need to adjust.

 

Can there be reasons to adjust? Sure, but not based on economic conditions that change like the weather. For example, maybe the nature of a fund’s management changed so the fund doesn’t do what your originally bought it for. Maybe your objective changed; aging can do this to a retirement portfolio. Maybe you feel inclined to sell when an investment reaches its target price.

 

See the difference? I’m not wanting to add gold on the fly to my portfolio because the economy suddenly turned sketchy.

 

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About the Author

Lt. Col. Shane Ostrom, USAF (Ret), CFP®
Lt. Col. Shane Ostrom, USAF (Ret), CFP®

Ostrom retired from the Air Force in 2000 and joined the MOAA team in 2006. His responsibilities include researching and answering member inquiries regarding military benefits, health care, survivor issues, and financial concerns.