The One Year Rule and Your Portfolio - Part DeuxSubmitted by Farrall Wealth on April 12th, 2017
April. A time for Easter celebration, flowers blooming, the Masters golf week and finding new inspirations! I write this as snow falls here in the Midwest in an extremely surprising one to three inches of accumulation. Seriously, not kidding. Mother Nature never seems to disappoint does she? Great sense of humor she has.
Typically, I use Spring as an evaluation month. How am I doing on my yearly goals? What about my New Year’s Resolutions? Am I on the right path or do I need a wake up call? So far, being honest with myself, I am happy with our year. As a firm, even though the Market has been extremely volatile already, we have held the course, answered clients concerns and worries and have been extremely aggressive in getting in and out of positions. We have traded more in the past few months than I can ever remember and are proud of our accomplishments. It seems like our clients are proud and happy as well.
Our recent Ribbon Cutting for the new office with the Valparaiso Chamber of Commerce drew over 200 people! It was great to see new and fresh smiles walk the halls of what we hope will be our home for many years to come. The food, the decorations, the new décor and the people were light and fun and everyone seemed extremely appreciative. Thank you for attending and if you could not attend, please let us know if you might like to stop by and see our new digs.
Personally my yearly goals are on the right path although I am always impatient. At this time of year, I am always wishing the weight would come off faster, more books would have been read, more time with the family and friends would have been spent and more boxes checked. However, goals are meant to stretch you and that is what they are doing so all good for now.
Spring is also a time for house cleaning. This is why I am reposting my blog post from a few years ago about our one year rule. I know it is blasphemy to “repost” a blog post but I hope the BlogGods can forgive me as things have been rather hectic as of late.
I hope you enjoy. If you have not read it, maybe it will motivate you. If you have read it in the past, thank you and maybe you will remember to clean that closet and check in with us about rebalancing your portfolio. Enjoy!
The One Year Rule and Your Portfolio
As city dwellers, everyone knows that space is limited. Parking spaces are rented out for hundreds of dollars a month, apartments the size of closets go for thousands, and a washing machine in your home is like owning your own brick of gold. You learn to minimize, do without and purge on a regular basis.
Because of this, my wife and I developed a rule that we use even to this day. It is our One Year Rule. Simply, if you have not seen it, thought about it or worn it in a year, it’s gone. There are a number of great charities that would love to have this stuff, whether they can resell it for cash or recycle for scrap metal. This a great rule because it allows you to reminisce about the past year, think about how silly you are at times and smile while you clean out your stuff. That torn flannel shirt you loved so much? One year rule. That dress that was all the rage? One year rule. If you wore neither in a year, move it out. It is amazing some of the things you can let go. Halloween costumes? Haven’t gone to an Ugly Sweater party in a few years? Why are you saving those magazines and catalogs, exactly? How else do Walkmans, Commodore 64’s and Atari’s move out the door?
Look, some of these things have value, another man’s junk, right? Nowadays you have Ebay. Go for it. But be honest with yourself. Most people let things pile up and gather cobwebs. Living in the city, we had no choice, we had to purge. In the suburbs, it is a little easier to let things go but if you can stick to the One Year Rule, it is amazing how organized your house becomes. We learned that without moving these things out, our lives just added more noise and you never felt like you we on top of things because they were literally living on top of you. When you only have one closet with one closet shelf, it is a lot easier to inspect that shelf on a regular basis. It changes a little when you have multiple closets but the idea stays the same. You have to minimize in order to maximize.
In April of 2009 John and his expedition partner, Tyler Fish, became the first and only Americans to travel “unsupported” from land to the North Pole. This 55-day, 475-mile journey has been accomplished by only 13 expeditions and has been called the “toughest expedition on the planet.” To travel unsupported means to travel under one’s own power without resupply. An unsupported expedition embodies the ethos of preparation, simplicity, self-reliance, and accountability—themes that John highlights in his motivational lectures.
Here are a few excerpts/pictures from their book called Forward:
As I listened to him speak about his preparation and training I was reminded again about doing a lot with very little. He spoke of loading a 300 pound pack that he would drag behind him to make this grueling trip. Do you think they had to pack well? All of rations and clothes and tent and hope and dreams, in one small sled. Amazing. It reminded me of how you have to pack well, plan well, minimize everything to maximize your return. Their trek is a true testament in making sure you prepare, plan and maximize with the minimum resources. An amazing journey and great read.
This is the same for your investment portfolio. You have to minimize in order to maximize. That stock you thought would be the next Facebook that is now trading below $1? Launch it. One Year Rule.
Gold seemed like a great buy a few years ago at $1800 an ounce and so did that new stock that is underwater. After a few years, it is a dead investment.
Why do you have that boom box in the garage? Plan to hold it over your shoulder at the next tailgate? Get rid of it and go pick up a Jawbone or Bose that is the size of your hand and sounds better. Find the next trend and invest in it. Better yet, these “new devices” play music through your phone and cassettes are not needed. Move them out!
Look, worst case is you are wrong. Never happened before, right? Odds are, you will be right though. If that boom box looks like it is coming back in style, then go out to the pawn shop and buy it back. In the meantime, clean your house and maximize the value of your portfolio. Hopefully, you get the point.
Get rid of the losers and maximize the winners. Do not have any regrets in moving on. Reminisce about why you bought the stock, if you can remember, laugh at yourself, and then sell it. If you have not researched a certain stock, looked up its competitors, followed earnings, or read about the company’s management in a year, it is time to move on. It is as much as a dead investment as that set of Bobby Blank DVD’s sitting in your game closet.
In the investment world we call this rule, Rebalancing. Getting rid of your crap does rebalance you emotionally, that is for sure. Purging is therapeutic. We always recommend you rebalance a portfolio at least every six months and most professionals do this even quarterly for you. If you run your own investments, you should rebalance at least once a year but then again, Ebay exists and why do you not sell your stuff on it? Reality is, once a year is okay and two years is too long. Not to get all Zen like on you but rebalancing does keep your portfolio centered and within your risk tolerance guidelines.
For your life and for your investments, use the One Year Rule. Remember, if you have not seen it, thought about it, or worn it in a year, let it go. Happy Spring and happy purging!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Please note rebalancing investments may cause investors to incur transaction costs and when rebalancing a non-retirement account, taxable events will be created that may increase your tax liability. Rebalancing a portfolio cannot assure a profit or protect against a loss in any given market environment.