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The Importance of Rebalancing

In today’s world, there is no such thing as a “set it and forget it” investment strategy. Even the most brilliant investors review their asset allocations periodically in effort to mitigate risk and optimize their portfolio persification. No matter how conservative your allocation may be, prices oscillate, markets move and economic landscapes evolve. As a result, asset values are forever changing and it is crucial that investors take into account the affects that these market fluctuations may have on their asset allocation; this is better known as rebalancing.

Rebalancing your portfolio is an elemental strategy when it comes to investing. Defined as realigning the weightings of one's portfolio of assets, it is important to make sure that you are not over allocated in any one asset class. This is simply the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original state, or target allocation. Using a conservative investor having an asset allocation consisting of 70% fixed income securities and 30% equity securities as an example. Let’s assume the equity market has an unprecedented year and stocks rise in value across the board. As the investor’s equity positions rise in value, the aggregated allocation for their equity securities now make up 45% of the total portfolio. Although capital appreciation is always the goal, the portfolio’s allocation is now out of balance. As the original allocation calls for 30% equities and not 45%, the investor should rebalance in order to bring their asset allocation back to the designated target allocations.

There are many reasons why it is important to rebalance your portfolio on a regular basis. By incrementally rebalancing, you are able to capture the gains yielded from over performing asset classes. In addition, rebalancing is key as it gives investors the opportunity to purchase under-performing asset classes while prices are low in hopes that they will be able to take advantage of that particular asset class’s future capital appreciation.

Not only are you protecting your upside, but you are reducing your potential downside as well. In reference to the aforementioned example, if you are over allocated in equity holdings, you may be taking on far more risk than you had originally intended. Rebalancing your portfolio will bring your risk levels back to their original states.

The frequency by which an investor should rebalance their portfolio is very conditional and circumstantial. No two investors are the same and thus, their rebalancing practices will likely differ. Some investors rebalance on a fixed time-based schedule, for example, quarterly, semi-annually or annually. While other investors rebalance once they see that their asset allocations have fallen out of line with their target allocations. It is important not to dwell on when you rebalance, as long as it is done every so often.

Rebalancing is a vital tool in maintaining the risk level integrity within your investment portfolio. There lie many inherent benefits such as capturing capital gains, obtaining under-performing assets at low prices, optimizing portfolio persification, as well as resetting your portfolio to its original target allocations.

When was the last time you rebalanced your investment portfolio? If you want to learn more about investment portfolio rebalancing or would like us to review your current asset allocation, contact Mitlin Financial, Inc. today at (631) 952-4466 x12. Learn how we can help you achieve a consistent risk level while optimizing your portfolio persification.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

How Rising Rates Affect Fixed Income

Are rising interest rates a concern? Will a rate hike affect your current investments? Are there any strategies to insulate yourself from the potential risks associated with rising rates? These are just some of the many questions that investors need to ask themselves in anticipation of rising rates.  As we near this inevitable rate hike, it is imperative for investors to have a firm understanding of how rising rates can affect fixed income securities. Opportunities may exist to implement strategies which may help to insulate their investments from potential downside.

As interest rates have stagnated at historical lows for quite some time, it has become commonplace to forget that rates will rise eventually. Now that the U.S. economy has been on a steady rebound, the Federal Reserve has begun to ready our economy for a rise in interest rates. Although it has not been indicated as to exactly when rates will rise, it has been made abundantly clear that we are closer to this increase than ever before. It is critical for investors understand the impact that this rise will have on their investments and finances.

What is the relationship between interest rates and the price of fixed income securities? There is an inverse relationship between interest rates and bond prices. This means that as interest rates increase, bond prices will decrease, and vice versa. Therefore, the value of your fixed income investments could suffer declines as interest rates begin to rise. The risk associated with this inverse correlation is known as interest rate risk. Aside from Bonds, mortgages are another fixed income vehicle that may be adversely affected by a rise in rates. Those with adjustable-rate mortgages may experience a rise in payments as rates begin to ascend. Additionally, loans (consumer loans, credit cards and student loans) may begin to decelerate, as the cost of borrowing may be far more expensive.

As we approach a higher interest rate environment, it is vital to position one’s investments accordingly. The astute investor should situate their investable assets in effort to mitigate the potential adverse effects associated with interest rate risk. Be aware that as interest rates rise, bonds with longer durations (or lengths of time until maturity) are far more volatile than those bonds of shorter duration. Additionally, re-allocating your long term bonds to shorter term fixed income securities may help to combat the depreciation in bond values as rates rise. It is important to understand that there is not one strategy that will work for everyone and therefore, it is crucial to have your situation and investments reviewed by a professional.

If you would like to learn more about how rising rates affect fixed income securities, be sure to view the latest edition of the Mitlin Minute. Should you feel that your investments may be negatively impacted by rising interest rates, it is in yours and your family’s best interest to have your situation evaluated, in effort to plan accordingly. Do not hesitate to give us a call at (631) 952-4466 x12 and see how Mitlin Financial can help protect your financial future.


Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

The Importance of an Emergency Fund

Many have a tendency not to plan for the unexpected. Unfortunately, life can be filled with unforeseen hardships. More often than not, these critical financial events can be very costly and even detrimental to one’s financial soundness. So how do you plan for the unplanned? Since life can be full of unanticipated events, it is important for inpiduals to take sufficient time to form a strategy to afford such emergencies. This is why it is crucial to have excess funds readily available. There are many reasons why an emergency fund is an integral component of a sound financial life.

Although the concept is rudimentary, it is still important to know when an emergency fund is used. This is an account that is used to accrue funds to be utilized in the event of… you guessed it, an emergency. Emergencies can take on many forms and it is important to be aware of the different scenarios and likelihood that these scenarios will occur. Do you really want to push the envelope by waiting until it is too late?

From the loss of a job, to an illness, injury or even the unexpected major home repair, these unexpected financial emergencies take on many forms. The main purpose of this fund is to improve one’s financial security. By creating a safety net of funds, you give yourself the ability to afford emergency expenses and reduce the need for high interest debt such as loans or credit cards. You will only exacerbate the issue by taking on additional debt; ultimately this will cost you more in the end. The emergency fund will also allow you to keep your portfolio intact without the need to liquidate funds at an inopportune time.

Additionally, this fund can help to mitigate the financial stress of unexpected happenstances. The financial preparedness associated with an emergency fund can help to make an unexpected event more manageable. Due to our ever-changing economy and the risk which plagues different industries at different times, job loss is prevalent fear amongst certain employees. No one ever expects this to happen, however, you can plan proactively in the event that it does. An emergency fund should contain (at a minimum) approximately three months’ worth of living expenses. This buffer will enable you to exert your efforts on a more productive job search.

Adding money to a savings account is a great way to start. It’s simple to use and the costs associated with a savings account tend to be minimal. A savings account also adds the convenience factor. This is crucial as it offers liquidity, or ease by which you can convert the funds into readily available cash. Everyone’s financial situation differs. The amount you should save is reliant on your own specific situation and circumstances. That is why it is important to consider the financial scope of the variable expenses that you may incur. Do you have children? Do you carry substantial debt? These are just some of the many questions you need to ask yourself when determining what size emergency fund will fit your needs. Depending on your life circumstances, it may make sense to have between 3-18 months’ worth of expenses.

The most important aspect of an emergency fund is actually starting one. Many times we procrastinate saving money because it is always easier to “save tomorrow”. An emergency fund can help to manage the financial stress resulting from rough unexpected hardships. Don’t wait for the unexpected to happen, be prepared and proactive. Be sure to check out the latest Mitlin Minute on emergency funds! Contact Mitlin Financial, Inc. today at (631) 952-4466 x12 and see how we can help to facilitate an emergency fund that is suitable for you.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Interest Rates

Lately there has been a lot of buzz in the media regarding interest rates. It is likely that you have already heard that we’ve been in a historically low interest rate environment for some time now. When will rates rise? By how much will they increase? Although we may not know the exact answers to these questions just yet, one thing is certain, we are closer to an interest rate hike than ever before. Many analysts and experts affirm the fact that the Federal Reserve is gearing up for an interest hike and it is important to understand what this may mean.

As the Fed is poised to start rising rates, we must acknowledge that such an increase can, and likely will, have an impact on millions of Americans. Despite all the various predictions as to when rates will rise, it is crucial to be proactive rather than reactive. For investors, it is imperative that they position their investable assets in such a manner that they may alleviate some of the negative impacts associated with a rate hike.

The average American should remain vigilant in an effort to understand the effects of a rate hike. Such a rise in rates can have some unavoidable consequences on their daily lives. This may include changes to the interest rates they pay on their credit cards, mortgages and auto loans. As borrowing money becomes more expensive, this may deter future homebuyers and consumers from spending as they normally would.

Preparation is always a key element of success and this is no different. As an investor, it would behoove you to formulate a game plan now. Since nobody is certain as to when rates will begin to rise, the time to consult with a financial adviser is now. It is in your best interest to develop a strategic game plan that can combat the potential adverse effects of rising interest rates; specifically, the effects that may impact certain asset classes. In the coming weeks, look to learn more about rising interest and the effects associated with fixed income securities in the newest blog article.

We all know that the Fed will be making the decision to increase rates at a point in time they deem to be most appropriate, and this is why you should position your investments before they even make that initial move. Feel free to contact us with any questions or for more information on putting a strategy in place at (631) 952-4466 x12. Be sure to check to check out the most recent Mitlin Minute on interest rates. Don’t wait until after the fact and let Mitlin Financial help you facilitate a game plan to best prepare you for the impending rise in interest rates.

 

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Tax Time Tips

It is that time of year again, tax season. As personal tax returns are due April 15th, it is very common for inpiduals to file their returns at the last minute. This procrastination tends to only exacerbate the stress associated with this time of year. Fortunately, there are many good habits and practices one can follow. It is important to note that although this article contains no tax or legal advice, there are quite a few tips which you may find helpful. There are many strategies one can implement to help alleviate this stress of tax season.

First and foremost, your tax return should be prepared and filed by a qualified tax professional. Although it’s very ambitious to file your own return, the experience and knowledge a tax professional can offer can prove to be invaluable.

Do it yourself tax preparation software is not the answer. It is in your best interest to hire someone who will prepare and file your return with the utmost professionalism, skill and care. Filing a return can get very complicated. The professional you choose should make sure you are maximizing your tax deductions. It is their job to be cognizant of any and all deductions that may be applicable to you. This is why it is crucial to have someone with experience oversee your tax planning.

A CPA can help to give you the inpidual attention needed to assess and monitor your situation. Hiring the right tax advisor should provide peace of mind. This is the foundation for a successful tax season.

In addition to retaining an experienced professional, it is just as important to be organized year-round. This does not mean scrambling to get all of your financial documentation in order the week of April 15th. This means maintaining organized records and copies of all your financial statements, papers and documents as you receive them throughout the year. By being proactive throughout the year, the meeting with your CPA will be that much more efficient when it comes time to file your return.

Your financial professional can assist greatly during this organizational process. They can help provide you with all necessary investment documentation and statements which you will need to provide to your accountant. If possible, it is a great idea to have your accountant coordinate with your financial professional in order to achieve efficiency and maximize productivity.

Being proactive is a very important strategy. As it is intertwined with being organized year-round, preparing your tax return before the deadline is crucial. This will leave you with the sufficient time needed to address and correct any errors or issues that may need to be addressed. If you procrastinate and file the week of, you forego this time to review and ensure that everything is correct. Not to mention, you may also come to realize opportunities for tax deductions that may have been overlooked.

We would even recommend having a tax planning meeting with your tax advisor towards the end of October. This will give you time to get a proper understanding of your tax situation for the year. In addition, this information may be helpful in making financial decisions for the remainder of the year.

If you are looking for a CPA to help prepare your taxes, we may be able to recommend someone that is a good fit for you. Also, be sure to watch the latest Mitlin Minute on tax time tips. For more information contact us at (631) 952-4466 x12 and learn how Mitlin Financial can help you find the right tax professional for you and your family.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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