Should You Take Winnings off the Table and Rebalance?

You know the stock market cannot continue upward indefinitely. You also know it is impossible to predict when the next downturn will occur. Do you let it ride, cash out or somewhere in between?

Whether you are a Conservative or an Aggressive investor, you are almost certainly taking more investment risk than you were a year ago. In a year like 2017 when the stock market increases significantly and with very little volatility, it can be easy to overlook the increase in your portfolio risk.

Psychologically, it is very difficult to take money out of an investment that has done very well and put the money in to an investment that has not done as well. However, this is what “rebalancing” a portfolio means.

In 2017, there has not been an asset class with a big loss which might represent a buying opportunity. Therefore, rebalancing now doesn’t require as much courage as previous years where you might be taking money from a recent winner and investing in a recent loser! Rebalancing at this time would be simply returning to the investment risk level you had 12-18 months ago.

So what do you put your winnings in that can help manage risk? Money market and savings accounts are paying very little, so unless you require full short-term liquidity, this is probably not a good choice. 2017 has brought many changes to fixed annuities that benefit consumers. The risk-adjusted return spread on fixed annuities relative to other principle guaranteed solutions has widened.

Many annuity carriers have reduced commissions and added levelized fee-based options. The result in some cases has been stronger benefits for consumers, especially in short-term fixed annuities (3-7 years). Somewhat surprisingly, we are seeing carriers maintain 10% annual penalty free liquidity on many of these shorter duration contracts as well.

These annuities are designed to credit interest based on the performance of a stock market index while protecting against loss in a negative market. It may be possible to have an S&P 500 cap over 5%. Individual contracts specifications vary.

The most difficult decision for an investor during a great stock market year is to sell off some of the winnings. Once that decision is made, then the decision of where that money goes is easier!



Rebalancing can entail transaction costs and tax consequences that should be considered when determining a rebalancing strategy.
Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company, not an outside entity. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation or advice of any kind. The information contained herein may contain information that is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor.