3 Important Investment Moves to Make in Your Portfolio

There are many different ways you can try to grow your portfolio, manage risk and reach your long-term goals. But in our 46 years of managing fund portfolios for clients–and 14 years of managing Upgrader Funds—we’ve found that there are three common-sense investing moves that can really make a difference.

Whether you’re invested in index funds or actively managed funds,  investing  for  retirement  or  to  fund  your  child’s college education, these three steps have the potential to help you set up your portfolio for long-term success.

1. Balance Your Portfolio

Most of our long-term money management clients have one thing in common: they hold balanced portfolios that include both stock and bond funds.

Balanced portfolios seek both growth and stability. They can help dampen volatility since stocks and bonds don’t usually move in tandem. In 2008, for example, the Barclays Aggregate Bond index was up 5.2%, while the S&P 500 was down -37.3%. But in 2013, bonds fell, while stocks gained: the bond index was down -2.0%, while the S&P 500 had good gains, up 32.4%. Balanced portfolios are designed to buffer potential stock and bond market declines, and this can help you stay invested long term.

The classic balanced portfolio has 60% invested in stocks and 40% in bonds. The stock exposure allows the portfolio to participate in stock market upswings, and  the  bond  exposure  provides  a  meaningful  hedge against volatility.

2. Rebalance Your Portfolio Regularly

Your investments in stocks and bonds will grow or shrink over time, so you’ll also want to make sure you regularly rebalance your portfolio back to your initial allocation so you don’t end up taking more or less risk than you’d intended.

The concept of rebalancing is simple: You may start out with a 60/40 mix, but if stocks do well, your portfolio could grow to 70% stocks and only 30% bonds. To rebalance, you’d sell 10% of your stocks and add that to your bond allocation. This means you’d sell a part of your portfolio that’s been doing well, and reinvest in an area that’s been lagging, which can be psychologically challenging. But think of rebalancing as a chance to sell high and buy low. As Marketwatch.com’s Chuck Jaffe put it, “You’re getting a high price for your winners— rather than letting some future market setback eat up some of your gains—and getting a bargain on the out-of-favor assets.”

In the portfolios we manage, we tend to use market corrections as an opportunity to rebalance. This means buying stock funds when the stock market has just fallen. This takes nerve, and not all investors are willing or able to do so. If rebalancing during corrections is challenging, determine how often you’ll rebalance and then stick to it. A common rule of thumb is to rebalance your portfolio quarterly.

3. Plan for Challenging Markets

Over the long term, balanced (and rebalanced) portfolios have allowed investors to grow their portfolios with less volatility than an all-stock portfolio. In a study featured in the New York Times, MFS Investment1 found that a balanced portfolio that had 60% in the S&P 500 index and 40% in the Barclays Aggregate Bond index “captured 90% of the return delivered by equities with only 65% of the volatility” when measured from January 1976 to December 2014 (the portfolio was rebalanced quarterly).

But over the short term, there may be periods when both stocks and bonds decline, and times when bonds outperform stocks, and this may tempt you to change your balanced portfolio. Many investors dumped stocks in favor of bonds after the 2008 declines. It seemed like a good decision at the time: bonds had held up better than stocks that year and bonds were less risky investments. But these investors ended up missing out on at least part of the tremendous stock market recovery that started in 2009.

This is why we believe one of the best investment moves you can make is to have a plan that helps you stick with your balanced portfolio, even when it seems out of sync. Your plan should help you take action based on your long-term goals, not your short-term fears.

RELAX: a balanced and rebalanced portfolio that adapts to changing markets

Balanced 60/40

The Conservative Upgrader Fund (RELAX) is a balanced fund that has 60% invested in core diversified stock funds for potential long-term growth, and 40% invested in our flexible income approach for stability. We built the Fund around the same core principles as our clients’ privately managed balanced accounts.

Rebalanced to help mitigate risk

RELAX is also rebalanced for you. We regularly steer the Fund’s exposure to stock and bond funds back to its 60/40 allocation. If the Fund’s stock funds grow to more than 60% of the portfolio, we’ll sell part of our stock fund allocation and reinvest it in bond funds. If the Fund’s bond allocation is more than 40%, we’ll sell some of the bond exposure and direct it to stocks. This process leads us to sell high and buy low. RELAX shareholders don’t have to make these allocation changes—it’s all done for them.


RELAX invests a diverse mix of around 25 underlying funds. We seek to invest the Fund in stock and bond funds that are excelling in the current market environment, and our Upgrading strategy leads us to change the Fund’s portfolio in response to changing markets. As of Dec. 31, 2015, RELAX held primarily large-cap U.S. stock funds, as well as some exposure to higher-quality bond funds. It also had exposure to mortgage-backed securities, high-yield bonds and dollar-hedged world bonds.

1 "Striking a Balance, June 2015.

Index performance is not indicative of fund performance. To obtain fund performance click here.

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