The Plancorp Recipe for a Balanced Portfolio

InspireHer: Plancorp Women’s Initiative

 Stacie Carrabine By: Stacie Carrabine

When I’m not busy reviewing client investment portfolios or researching fund options at Plancorp, I’m an avid cook and baker.  I love to compose a gourmet dinner or whip up my favorite batch of chocolate chip cookies from scratch, while of course following my tried-and-true recipes. 

In many ways, perfecting a recipe is much like optimizing an investment plan.  Someone has to put in the time and effort to make sure you achieve the right ratios of the best ingredients (i.e., funds) for a successful outcome.  

Your Personal Chefs: The Plancorp Investment Committee

Here at Plancorp, our Investment Committee spends hours in the kitchen developing the right mix of funds to help you reach your financial life goals.  A lot of thought and academic research goes into each low-cost, globally diversified portfolio. The end result is a financial “recipe” customized just for you and your goals, with a hand-picked mix of funds as the individual ingredients.

But that’s just the beginning of the work we do. As clients continue to fund their accounts and markets change over time, portfolio asset allocations can start to shift. So, we rebalance to get them back to their original recipe.

Curious how we do it? We’ll let you in on our recipe.

  1. Buy ingredients on sale.

It’s impossible to know if the market will be up or down on any given day, but we do know that it will do both over time.  This movement impacts our clients’ portfolios—and, unfortunately, can also take them along for the emotional roller coaster ride. This uncertainty is what causes the classic investor mistake of buying high and selling low. 

We help you avoid these emotional traps by taking advantage of the market cycles in different asset classes.  We do this by selling the asset classes that have done well and buying the asset classes that are “on sale.”  Everyone loves a good sale, so why not take advantage of that your portfolio?

  1. Mix well to mitigate risk.

By ensuring your portfolio is following its chosen asset allocation, rebalancing helps to reduce overall risk.  For example, let’s say your plan uses an asset allocation of 70% stocks and 30% bonds.  If stocks do well over time, this might change the overall mix to 80% stocks and 20% bonds.  You didn’t change anything, but you are now exposed to more risk than is appropriate for your plan’s timeline.

Rebalancing solves this issue, as the Investment Committee created bands around each fund and asset class in your investment plan. If your portfolio ever moves out of those bands, we make the trades necessary to bring your account back into balance, therefore realigning your risk with your goal.

  1. Garnish with fresh dividends.

While you’re busy stashing away cash for your future goals, we’re hard at work putting it to use to rebalance your investment portfolio.  We’re also putting distributions from the funds to work for you.

Mutual funds make distributions, which are just earnings from the fund’s operation.  We use each deposit or dividend distribution to purchase the most underweight asset class—again, buying what’s been on sale and giving you the best chance to grow your money over time. 

The more frequently you make deposits, the easier it is for us to invest tax-efficiently. Monthly deposits give us flexibility to buy funds that are underweight with fresh cash. Otherwise, we may need to sell funds in your portfolio, which could create capital gains and a larger tax bill for you.

  1. Slip in the secret ingredient.

As different asset classes fluctuate with market volatility, we’re able to take advantage of a secret ingredient: tax loss harvesting. This process locks in losses that can help offset gains or ordinary income, which can impact your after-tax returns. 

This sounds simple, but you can lose the benefit if you’re aren’t careful in what fund you buy as a back-up or if you don’t wait the right amount of time.  Fortunately, you don’t have to know all the rules. Every month, our trading team reviews each client’s portfolio for these types of opportunities.

Let Us Do the Cooking

Even though I love to cook, there’s nothing like going to a nice restaurant and not having to lift a finger to buy the ingredients, prepare the meal, or clean the dishes. Here at Plancorp, we take care of building portfolios, monitoring them daily, and rebalancing them regularly. All you have to do is sit back and enjoy.

 Plancorp does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.

This post was written by a member of InspireHer, Plancorp’s Women’s Initiative, which strives to advocate for clients and women in the community by addressing topics specific to their financial lives. For more information about InspireHer and how you can get involved, email inspireher@plancorp.com.

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Born and raised in Fairfield, Iowa, Stacie moved to Missouri to attend Saint Louis University, where she graduated cum laude with her BSBA in Finance. She draws on her financial and analytical background every day at Plancorp, working with the investment and operations teams to maintain portfolio balances, make rebalancing recommendations and execute trades. More »