Rebalance your portfolio and your priorities

Brian Ford (00:06):

Welcome to Money and Mindset with Bright and Brian, a podcast that explores how good financial habits and positive psychology can help you find greater happiness. I'm Brian Ford, head of Financial Wellness at Truist. I'm joined by my co-host and friend, Bright Dickson, Truist's resident expert in positive psychology who helps people find purpose at work and in life.Hey Bright, how are you doing today?

Bright Dickson (00:29):

Hey, Brian. I'm doing really well. Thanks. The topic we'll be discussing today, rebalancing your portfolio and your priorities, is such an important one, especially for long-term financial well-being. We all need to take time to look at our investments and rebalance our asset mix to help maximize results. This idea and those same principles can also be applied to how we rebalance emotionally for our well-being.

Brian Ford (00:54):

That's what I'm most excited about. I think there's definitely a crossover and one that I haven't given a lot of thought to, so I'm excited. But first up, we'll talk about our finances, specifically why we need to rebalance and why diversification is so important. We'll talk about asset classes, investment strategies, and the importance of working with a financial planner. You ready to go, Bright?

Bright Dickson (01:15):

Let's do it.

(01:22):

In this episode, Brian and I are talking about investing long-term for retirement and the need to rebalance your financial portfolio and how those same actions can be applied to our everyday priorities. First, let's focus on the financial side of the equation.

(01:38):

Brian, why don't you start from the top and help us find the answers to these three questions? What does it mean to rebalance your portfolio? What is an asset mix, and what about diversification? What is all that?

Brian Ford (01:51):

Great questions. When it comes to investing for retirement, let's start with rebalancing and what that means. Rebalancing your portfolio is it's more important than people think, and it's a key to smart investing. Now, you may have heard people say the trick to investing is buy low, sell high so that you can make money. Well, I'm more of a long-term buy and hold type guy, but the cool thing is is that rebalancing your portfolio once a year can help with this. But before I dig in, I want to say that today's podcast, we're going to be discussing basic ideas and tips, but for a more personalized approach, we all need to find a good financial planner who can help us with our unique needs.

Bright Dickson (02:33):

Yep, great point, Brian. A financial planner will help you create your own personalized plan that's just for you.

Brian Ford (02:41):

But for our purposes today, we'll talk in general terms. When we think about rebalancing a portfolio, it's the idea that you have already decided, with the help of a planner, what assets are right for you. This is called your asset mix. And throughout the years, some of these assets will go down in value and some will go up. Totally normal. However, now your asset mix is not correct. So we need to rebalance back to the originally decided upon asset mix.

Bright Dickson (03:09):

Okay, but how do I know what asset mix is right for me?

Brian Ford (03:14):

Yes. All right, so let's take a step back and let's talk about that for a minute. There's two main levers that we're going to work with when deciding the right asset mix. First is your time horizon. Second is your risk tolerance.

Bright Dickson (03:28):

So time horizon is like how many years you can and want to invest, and risk tolerance has to do with the types of investments you're comfortable with?

Brian Ford (03:39):

Yeah, so your time horizon is how long you plan to hold your investments before you need the money, and your time horizon will help you decide how much of a certain asset class you want to invest in. Risk tolerance, on the other hand, it looks at how much risk you are comfortable with and how aggressive you want to be. Some assets have more risk than others, obviously, and generally speaking, the longer your time horizon and the higher your risk tolerance, the more aggressive you can be. On the other hand, if your time horizon is shorter, your risk tolerance is lower, the less aggressive you should be.

(04:15):

So once you've got your portfolio set up with the right assets based on your time horizon and your risk tolerance, you'll want to double check that your portfolio is properly diversified. We've talked about this before on the show, but diversification, it's so important. It just means that you have a variety or a diversity of assets. So in other words, it's best not to have all your assets and only a couple asset classes. You want many different kinds. You'll want stocks, bonds, commodities, and more.

(04:41):

Okay, going back to rebalancing. Once you have the right properly diversified asset mix based on your specific time horizon and risk tolerance, Bright, I mean, if we've done that, we should be feeling really good because that's the majority of the work. That's the tough stuff. But let's pretend we've done that. Now we just need to rebalance once a year. We want to look at our portfolio every year to see how the assets within our portfolio we're doing, and it's likely that we'll find that because some assets have gone up in value and some have gone down, our asset mix is now out of whack. So our natural tendency is to invest more in those assets that have done well, maybe feeling a little greedy, and stay away from the assets that have underperformed or shrunk, possibly a little fear. But guess what?

Bright Dickson (05:29):

That's not right? That's not the thing to do?

Brian Ford (05:34):

Well, I would just say we need to be careful about investing with our emotions. More specifically, we need to watch out for greed and fear. And this is why we set up systematic strategies like rebalancing. Investments that have done well throughout the year may now be overvalued, and so it may be time to sell a portion of those and invest a little more in the ones that haven't done as well. By not overthinking and keeping emotions out of the equation, we just need to rebalance. You'll want to get back to the right asset mix that we've already decided on, and this means selling some of the assets that have done well and buying some that have underperformed. And as a rule of thumb, we recommend rebalancing once a year, usually at the end of the year.

Bright Dickson (06:19):

Okay, so what if I don't know what type of investments are right for me, hypothetically, Brian?

Brian Ford (06:27):

For a friend. I mean, this is where a financial planner comes in. A financial planner, they're going to tailor the right investments to your specific time horizon and risk tolerance. Most financial planners, they're going to recommend having a diversified portfolio that includes the main categories of investments. In fact, Bright, let's take a minute to run through these main categories of investments just to make sure we're all on the same page. So let's talk about stocks first.

(06:54):

It may surprise people to know that the category of stocks, it isn't just a one size fits all kind of stock. Instead, stocks normally fall into five main subcategories and we'll want to consider having a mix of all the categories in our portfolio. To begin with, there's US stocks and non US stocks. Within US stocks, you've got large companies, you've got medium companies and small companies you can invest in. People try and get fancy every once in a while, and these are sometimes called large-cap, mid-cap and small-cap. Then you also have non US stocks. Here you have developed companies in developed markets, and then you've also got emerging companies just getting going in emerging countries. So that's stocks.

(07:40):

Now let's talk about real estate. Bright, we can invest in a rental home or an office building or an apartment complex, but for most of us that want to invest in smaller chunks of real estate within our retirement portfolio, we will want to use something that's called a REIT. A REIT, R-E-I-T, just stands for real estate investment trust.

(08:04):

All right, another asset class is commodities, sometimes forgotten about. Examples of commodities would be gold, silver, and other natural resources. This category also includes the companies that work to procure or work with commodities such as mining companies, even transportation companies that transport the commodities, like a rail or a trucking company.

(08:25):

Then we have an asset class called fixed income. These are our bonds. And there's many types of bonds we're not going to get into today, just be sure to chat with your planner. And within the many bond categories, there are US bonds and international bonds. We should think about having both.

(08:42):

Finally, we have cash. This is the money you've got in your savings accounts, checking account, including actual cash.

Bright Dickson (08:50):

Okay, that was a lot.

Brian Ford (08:52):

Yeah.

Bright Dickson (08:53):

So here's what I've heard. I've heard that your total portfolio, everything you've got should be 33% in stocks, 33% in bonds, 33% in commodities, and a little in cash. So is that where the rebalancing comes in? Do you look at how your assets have done for the year and then rebalance them to fit those percentages or... It seems like there's a lot to balance here. So what am I balancing

Brian Ford (09:23):

Well, the 33% of stocks, bonds, and commodities, yes, it's one example of an asset mix, but that would not be right for everyone. Again, we all need to work with a financial planner to figure out the right asset mix specifically for us. But having said this, yes, that's a simple example of a person's asset mix. You're exactly right.

Bright Dickson (09:45):

Okay, I'm following you, but can you talk a little bit about why you need to rebalance?

Brian Ford (09:50):

Sure. There's a couple main reasons why we want to rebalance. First, let's use the example, Bright, that you just gave of 33% in stocks, 33% in bonds, and 33% in commodities. Let's pretend that as the year went on that stocks did poorly, they went down in value, and bonds did really well, they went up in value, and commodities stayed about the same. At the end of the year, your asset mix may now be 20% stocks, 50% bonds, and about 30% commodities. Well, based on your time horizon and your risk tolerance, this would not be right, so there's a need to rebalance. Second rebalancing helps us bypass our emotional response and it helps us put in a systematic approach, and that just makes us a smarter investor.

(10:42):

I think of rebalancing is like this sneaky magic because over time, it makes sense to sell off some of the investments that have done well and put more money into the ones that have underperformed. If you get into the habit of rebalancing, you can experience the magic of having a well-diversified portfolio. But remember, diversification and rebalancing do not ensure against loss and does not assure a profit.

Bright Dickson (11:07):

Right. So how do I get this done? What do I actually do?

Brian Ford (11:11):

Simple. At the end of each year, maybe that's around November, December, schedule a meeting with your financial planner and ask them to rebalance your portfolio.

Bright Dickson (11:20):

Okay, that's simple. Many of us have a 401K plan through our employers. Do we need to rebalance that portfolio? What do we do with that?

Brian Ford (11:32):

Yeah, good question. Many funds within a 401K plan are set up to automatically rebalance. That's super cool. In fact, that might be the case for some of our listeners, but check with your employer or your benefits manager and just simply ask, "Does my 401K fund or the funds within my 401K, do they autorebalance? And if so, how often?" If the answer is no, then you can just ask your financial planner to help you rebalance it. But one more thing on the topic of 401Ks, some companies also provide access to a financial planner as a part of the benefits package. So if yours does, take advantage of that because they're there to help you.

Bright Dickson (12:11):

Oh, that's great. This is such good financial advice, Brian, and I think I've got some homework to do to make sure that I'm rebalancing. And I really love this idea that rebalancing can increase your knowledge so that you can become a smarter investor.

Brian Ford (12:29):

Yep. Like I said, rebalancing is like sneaky magic, but something that's often overlooked but important.

Bright Dickson (12:35):

Yeah. When we come back, we'll talk about how to apply the idea of rebalancing to your priorities and how doing so can help increase your mental wellbeing. Stay with us.

Brian Ford (12:54):

We've been discussing the reasons why we need to take time every year to rebalance our financial portfolio, and now I'd like to talk with you, Bright, about how we can apply the principle of rebalancing to our life and our mindset.

Bright Dickson (13:08):

Yeah, it's an important discussion, Brian, because I think we need to be clear and focused about where we want to go in life and then balance our priorities in the way that we're spending our time and energy to make those things really happen. So just like we discussed with our finances, when we're rebalancing our priorities, we have to consider our time horizon, our risk tolerance, our values, and our goals for our life plans.

Brian Ford (13:34):

Okay. All right, so where do we start, Bright? How do we take a look at what we need to balance out?

Bright Dickson (13:41):

One of the easiest ways is to use this tool called the Life Wheel. And you might've seen one before. It looks like a pie chart with different colored wedges that represent different areas of your life. So you'll have a wedge for work, a wedge for kids, a wedge for your relationship, your dogs, exercise, spirituality, time and nature, whatever categories apply to you. So you can find generic ones. You can make your own. It's a pretty simple tool. And you can subdivide that Life Wheel however you want. The point is to create a wheel that encompasses your priorities and values and then use it as a point of reference to reflect how accurately you spend time and energy in those important areas. You can make one digitally or draw one out on a piece of paper and then fill in the wedges. If you can draw a circle, you can draw a Life Wheel.

Brian Ford (14:43):

All right, so I'm thinking of this and does it matter what colors I choose?

Bright Dickson (14:49):

I mean, depends on of your aesthetics, but no, not really. You can choose whatever colors you like, and put whatever in there that matters to you. And once you've created that Life Wheel, which can take a hot minute to say, "Okay, what really matters to me?" You need to set some time aside to analyze it and compare it to how you're actually living your life. So you need to ask yourself, "Is this Life Wheel a true representation of my priorities and values? Is there an area that's missing? Is there an area that doesn't really apply and needs to be removed?" Once you're confident that the Life Wheel is accurate to you, you can move on to some more questions. So am I putting my time and energy into the right stuff that I've got on my wheel? And where is an area or two that maybe needs more improvement? And if what you see on your Life Wheel isn't really a true reflection of what you're doing with your life and doing with your time and energy, then take the time you need to rework it.

Brian Ford (15:58):

Okay. All right. I think I got it. So the Life Wheel, it can help me see all of the areas of my life visually so I can find a good balance. And I think the idea is I want to be careful about not being too heavy in one area, so I can't be a health freak and put all my time and energy there, but then be in a relationship and have that not work out, or if I'm working a ton of hours on my job, but then are spiritually void of values, that doesn't work either. And I think we all know people like that, and it's not really a well-lived, well-diversified, balanced life.

Bright Dickson (16:36):

Yeah, that's right. And the wedges in your Life Wheel, they'll change over time. The way you're spending your time may change week to week or even over the course of months or a year. Sometimes we're spending more time with family. Sometimes we're spending more time at work. That happens. It's really about using the tool over time. And there's no right or wrong way to create it. Right? The only rule is that it should be customized to you and accurate to you, and it's going to change an ebb and flow over time.

Brian Ford (17:12):

Cool. So I'm visualizing mine. I'm going to do this. I'm going to do this with my wife, actually. I think this is cool. In mine I'm visualizing certain pieces of the pie, different areas of my life are larger or more important, representing more time. That's the way I see mine. So if my Life Wheel has my wife, it's got kids work, church, health, spending time outdoors, et cetera, what else can I do with the tool other than look for areas that need more balance?

Bright Dickson (17:44):

Yeah, I think one thing, and we've talked about goal setting before, but it plays in here too, right? You've got to set some goals around what you want to improve. So for example, once you know what your wedges are, you can set goals and make plans for any or all of the categories, right? So for you, Brian, maybe in that family wedge, maybe it's right next to your spending time outdoors wedge, and maybe one of your goals is to take a family trip once a year. So since you have kids out of the house, or some of them, maybe it's an important goal because it helps ensure that you and your kids have a way to stay connected, or maybe because you love to spend time outdoors, one of your goals is to hike a certain number of miles each month to help you stay connected to nature and to your physical health. So whatever your goals are, your Life Wheel can help ground your values and then work your way towards building your wellbeing.

Brian Ford (18:46):

Yeah, I love that. And I love this visual representation because if I'm setting goals, those goals that hit multiple wedges are, to me, that's money. That's awesome. If I want to spend time outdoors, my family's important, planning a trip or a goal that encompasses several wedges, I think is time well spent.

(19:08):

All right, cool. So we talked about the importance of rebalancing your financial portfolio every year. What do you think the right cadence is for revisiting your Life Wheel?

Bright Dickson (19:20):

Yeah, again, it depends. For some people it's a daily check and rebalance, right? For others, maybe it's weekly or monthly, maybe it's quarterly. I don't know. It depends on the person. And I think you can revisit the Life Wheel as often as you need to align with your time horizon. So just like it is with various financial investments, some of your goals on the Life Wheel may be short-term, and others are long-term. And Brian, when we were talking earlier about rebalancing your financial portfolio, you said to remember that your portfolio and asset mix are yours. It's personal. And the Life Wheel fall is the same idea. Your Life Wheel won't look like your partners or your best friends or your parents, and it shouldn't because your priorities and values and goals aren't like anyone else's. They're yours.

Brian Ford (20:09):

And man, I'm thinking about this in relationship with my wife as well. Be fascinating if I kind of did my life will based on what I want. This would be my ultimate allocation. And then I said, "Well, but I'm not really there and drew where I think I'm at." But then almost separately, I'd want my wife to do one for me as well and almost bring some reality to it and make sure that we're on the same page. I like this.

Bright Dickson (20:37):

Or maybe you do one, she does one, and then you do one together, right?

Brian Ford (20:43):

Yeah. It's like one very cool art project. We get together often and talk about life and priorities and goals, but once a year, typically at the end of the year, we do come together for a couple days. We try and get away and reflect on what's going on. And I think this could be a cool activity. I am packing crayons on the next little overnighter. Okay. So if I'm looking at this life will, what do we do if we find ourselves out of balance? How do we get back in balance?

Bright Dickson (21:12):

Yeah, it's really the same thing you do with finances. So you dedicate some time to sit down and evaluate where you are right now and maybe why. I think one of the things here too is that we have the best intentions, many of us, and then something comes in and takes us off of our goals and takes us off of our focus. And it's important to identify, for the future, why you get distracted or move away from your goals and identify what's working and what's not working.

(21:44):

And Brian, when you said you should sell some investments that are doing well and put more money into the ones that aren't doing well, it really struck a chord with me because that same idea can be applied to the Life Wheel. So for the areas where you're doing well, take time to feel proud of your progress and celebrate it, right? That's an accomplishment. Enjoy and celebrate that accomplishment.

(22:08):

However, for the areas where you're not getting the results you want, you probably need to invest more time, energy, and effort. You've got to rebalance those areas where things are out of sync. So that means you have to shift your priorities, take some from over here and put it over there. And when your Life Wheel is balanced, you're going to feel that. Not just when it's balanced on paper, but when it's really balanced and you're doing the things that you want to do and you're spending your time where you want to be spending it, you're going to feel the benefits in your mental well-being.

(22:41):

And you don't have to accomplish everything right away, because again, the cadence for rebalancing isn't once a year like it is for finance. It's whatever you need it to be. So you may be rebalancing a lot more frequently, and that's okay. I think it's even better. Don't wait until it becomes a problem. Nip it in the bud and rebalance when you need to. And you know how you said one of the goals of rebalancing your portfolio is to become a smarter investor? Same thing here. One of the goals of rebalancing your priorities is to become wiser about your priorities, your values, your needs.

Brian Ford (23:20):

Yeah, for sure. And when your finances and your priorities are in order, you'll likely feel more balanced mentally and emotionally.

Bright Dickson (23:28):

Yep, exactly. And living a balanced life according to your own values is really key to happiness and to well-being. It's a thing you're going to do your whole life, but the effort is worth it. I think just like with your finances, it's going to apply to everything, and the payoff is really worth the effort.

Brian Ford (23:54):

Yeah. Man, when I think about this concept and the crossover between our finances and rebalancing our portfolio, and then where our time is going and balancing out where our time's going based on what's most important to us, to me one of the biggest similarities in both is you got to put in the work up front.

(24:17):

So the finances, yeah, you need to meet with the planner. You got to make sure that you know what assets are right for you, get that asset mix right, but once you've done that, boom, you've got that set. That's your north star. It's very similar, I think, in life, and making sure that we really know what we care most about. We know where we want our time to go, and that takes some time, that takes some reflection, but man, once that's set, again, that becomes your north star. That's your Life Wheel. And then you just got to check every once in a while. Are you in balance? Do you need to be doing some rebalancing?

(24:52):

This conversation, it's been good, Bright. I've spent so much time learning about financial concepts, like rebalancing my portfolio, but maybe not enough time thinking about how these financial concepts can also apply to my mindset. And I mean, seriously, the idea of rebalancing my time based on what I value is so cool. Just like investments throughout the year, some of my life categories, they're going to be overweighted, sometimes for a good reason, and that's okay, but it's important to get back into balance again.

Bright Dickson (25:27):

And one of the things that I've been thinking about throughout this conversation is what we're talking about is pretty universal and applies to every one, but the way it shakes out is so personal and you have control over it, right? You don't have maybe control over how anyone's stock performs or that kind of thing, but you have control over what you put into every area, and that should feel empowering for everyone.

Brian Ford (25:54):

Yes.

Bright Dickson (25:55):

And I think applying these principles of balance and evaluation to your finances and your wellbeing, it's rewarding, it's worthwhile, and there's a payoff.

(26:12):

That's it for this month's episode of Money and Mindset with Bright and Brian. We hope you found some great ideas for rebalancing your finances and your priorities. To all of you listening, thank you so much for your time and support, and thank you as well, Brian.

Brian Ford (26:25):

Yeah, thank you too, Bright. Good episode.

(26:28):

You can listen to other episodes of our podcast along with finding some cool articles, some tools. You'll find that at truist.com/money-mindset, or just do what I do Google Truist Money and Mindset. We'll be back soon with more ideas and insights that are designed to help you boost your financial confidence. Until next time.

(27:01):

This episode of Money and Mindset with Bright and Brian is brought to you by Truist.