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Wait, You Did What?!

Hello, and welcome to our Market Alert video for today, which is July 18 2024. And I’m Ken Moraif. I’m the founder and CEO of our wonderful company, Retirement Planners of America. And the reason I’m smiling is because I was just thinking about a client I met with yesterday, who was saying, I don’t want to be a SCWPer. I don’t ever want to retire, don’t ever use that word with me I don’t like that word. And in case you forgot what SCWPerS are, that is the acronym for a second childhood without parental supervision. So when clients retire, we call you SCWPerS. And he doesn’t want to be a SCWPer. You know, he’s from Texas, he says, I want to die with my boots on. So anyway, that’s why I was laughing. This week, I want to share with you something as a refresher course for you longtime clients that may not remember what we do for you behind the scenes, I think it’s always good to, to remind you of what we do, because you may not see it. And that is a strategy that is called rebalancing. And we do this on a quarterly basis. So at the end of each calendar quarter, we rebalance your portfolio if it’s warranted. And so at the end of June 1 week, in July 1 week in October, in January, and April, if it’s appropriate, we rebalance your portfolio. Now, I’m going to preface this by saying that no strategy guarantees any positive results and rebalancing may not result in better results. And of course past performance does not guarantee the future either. So I just made my compliance team very happy. So I want to share with you what rebalancing is, and more importantly, how it has, in our view worked so well for our investmentsthis quarter. Okay, so let me share my screen with you. So give me a momento here. So this chart right here is, we’re gonna assume for a moment that you have $200 to invest. And we’re going to have a 50/50 portfolio. And I’m going to, I’m going to use this as an example because it makes the math easy. So we have $200, to invest. And so what we’re going to do, therefore, if we’re in a 50/50 portfolio, is we’re going to put $100 on each side. Okay? Now, let’s say that the side on the left does phenomenally well goes up 60%. And the side on the right does terribly and loses 10%. And so I’m exaggerating the numbers here to make the point. But as I’ll show you in a minute, this year, a similar dynamic has happened. So let’s let’s proceed with this one. So now we have $160. On the left, we have $90 on the right. We now have $250, we’re feeling really good about ourselves, right? We’ve made 25%. Life is good. But we now have a problem. Do you see what the problem is? Well, the problem is, we’re not 50/50 portfolio anymore, are we? We now have most of our money on the left side. We have $160 and we only have $90 on the other side. We decided we wanted to be in a 50/50 portfolio. So now we are way more aggressive risk than what we originally planned, the portfolio morphed all by itself, and we don’t want that. We want to help control risk. And also, what history tells us is if something went up 60% its likely to go down, and the one that is down 10% is likely to go up. So the we’re all mixed up here in how our allocation is. So how do we get back to our 50/50? Well, what we do is we rebalance, which is another way of saying we’re going to buy low and we’re going to sell high, we’re going to buy the one on the right, we’re going to buy $35 of that, we’re going to sell $35 of the one on the left, and that’s going to bring us back to $125. On each side, we’re back to our 50/50. And by the way, the buy low and sell high is not guaranteed. But it is the preferred method, you know, and I’ve met people have tried it the other way, and they tell me it doesn’t work very well. So we don’t want to do that. Anyway. So now we’re back to our 50/50. So what have we done here? We have not sold the one on the left, we still have more of it than we started with. We started with $100 We now have $125 We have more of it than we did at the beginning of the previous period. But you know what? We’ve rebalanced, we’re mitigating the risk. We’re 50/50. Now we could have said we want to stay in that 160 and 90 posture, we could have done that. But the important thing about this strategy is it puts us in control of the risk we’re willing to accept. It puts us in control of the percentages that we have on each side. Okay? And that’s the important thing that we always want to do. Because you know, when you invest you are in the risk business and that’s an important thing to be aware of. All right, the next thing I want to show you is what has happened at the end of this last quarter with our investments specifically. Now, if you’re watching this and you are not an RPOA client, it’s important to consider possible tax ramifications when you’re rebalancing because when you sell some assets really high, you’re likely to have a tax event. So that’s something to always be aware of in our view. We also think it helps avoid that by looking at rebalancing on a frequent basis, like we do each quarterly. Okay, so this chart right here shows you the period from the end of the quarter through July 18. Now the green line right here is the BNY Mellon large cap fund, okay, BKLC. And you can see that I’m sorry, the blue line is and you can see it’s up 2% in the quarter, which is pretty darn good actually. But look at this purple line, this is the small caps. So when we rebalanced at the beginning of this quarter, we essentially sold some of our large cap stocks because they’re the ones that had a lot of growth in the first half of this year, a really big rise. And so by rebalancing, we took some of that off the table, we took some of those profits, and we bought the other parts of our portfolio, one of which being small caps. And you can see that small caps are up about 8% since the end of last quarter. So that’s a significant difference between the two. And by rebalancing, we were able to capture that. Now it doesn’t always work that way, it’s not guaranteed just be aware of that, but it does work more often than not in our view. Now the other line on here that I think is interesting for you to notice is this green one, and that is bonds and our bond portfolio and in this case, it’s the BKAG, which is the the bond aggregate index so it’s a representation of the bond market and what you can see is that it’s done quite well also and our view is that for the second half of this year especially with the Fed lowering interest rates that it very well could do better than stocks so by rebalancing we took some money out of those large cap stocks that had done so well. And we rebalanced into the small caps we rebalance into the aggregate bond ETF and we think that those are two solid moves so far. Now of course the year is not over and but it’s just something that I thought you would find interesting to see. So thanks for watching this video. And you know as we said we do think the stocks are going to continue to do well for the second half of this year. But we think bonds are going to do better and so we’re so glad that we bought into our bond portfolio late last year perhaps a little early but no one can time it perfectly. I don’t think certainly not us but I think we did a we got in at a good time so for now all as well. We don’t see any major dark clouds on the horizon to cause us concern but as you know we always have our Invest and Protect Strategy ready to be enacted. If we have to get out to help protect you we will don’t you fret about that. So in the meantime you SCWPerS out there in SCWPerS Nation go out and have fun and enjoy! Those of you who are not SCWPerS, We’ll get you there unless you don’t want us to in which case that’s fine. You don’t have to retire you can work the rest of your life. That’s what I plan to do. So thanks for watching. Share this with your friends and family and we’ll talk soon.

Please note: transcript has been modified after the time of recording. 

Economic indicators and stock market performance cannot be predicted. Opinions expressed regarding the economy and the stock market belong solely to Ken Moraif on behalf of Retirement Planners of America and may not accurately portray actual future performance of the economy or stock market outcomes. Opinions expressed in this video is intended to be for informational purposes only and is not intended to be used as investment advice for individuals who are not clients of Retirement Planners of America. All content provided is the opinion of Ken Moraif, CEO and Founder of RPOA Advisors, Inc. (d/b/a Retirement Planners of America ) (“Retirement Planners of America”, “RPOA”). ©Copyright 2023 

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RPOA Advisors, Inc. (d/b/a Retirement Planners of America ) (“Retirement Planners of America”, “RPOA”) is an SEC registered investment adviser with a primary business location in Plano, Texas. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that Retirement Planners of America has attained a certain level of skill, training, or ability. The “Invest and Protect Strategy” (the “Strategy”) refers to a strategy that Retirement Planners of America fundamentally employs for its clients. Retirement Planners of America previously employed a similar strategy that it referred to as the “buy, hold, and sell” strategy or “buy hold, and protect” strategy. Past performance does not guarantee future results. Therefore, current or prospective clients should not assume that the future performance of the Strategy, any specific investment, or any other investment strategy that Retirement Planners of America recommends will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. References to recommendations made under the Strategy that predate 2011; and statements such as and similar to: “we told our clients to be out of the market in 2007 and 2008,” “we told our clients to get back into the market in 2009,” and “clients that followed our advice were out of the market in 2008;” refer to strategies collectively employed and recommendations collectively made by Retirement Planners of America’s principals while employed at Eagle Strategies, LLC., and also at Cambridge Investment Research Advisors, Inc. Three of the five principals remain as principals today, including the Retirement Planners of America’s founder, Ken Moraif. 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