MDNews - Cleveland-Akron-Canton

May/June 2012

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Page 38 of 47

A Rebalancing Act "D By Paul D. Guerra ON'T PUT ALL your eggs in one basket." If this everyday piece of advice comes to mind when thinking about your investments, then you may already understand the importance of a diversified portfolio. But even the most carefully composed investment portfolios can get out of balance from time to time. Two common reasons your portfolio could get out of balance would involve a change in the ratio of the asset classes in your portfolio, or a change in the value of your various assets. Asset classes refer to the general types of investments that make up your overall investment mix: stocks, bonds, cash, mutual funds and ETFs, to name a few. As the respective values of those various investments change, the proportions in your portfolio will change as well. Consider a very basic portfolio made up of stocks, bonds and cash. Out of these three asset classes, stocks are likely to see the biggest price fluctuations. If the price of your stock position rises significantly, the overall percentage of stocks in your portfolio grows in relation to the percentage of cash and bonds. Thus, the proportion of cash and bonds is decreasing. Since stocks tend to carry a greater level of risk, this imbalance may increase the volatility of your portfolio. At the other end of the spectrum, if your stock prices drop, the percentage of equity assets in your portfolio decreases as well. The risk is lowered, but Want a healthier practice? Call us for a check-up. For more than 30 years, physicians have called on the CPAs at Weidrick, Livesay, Mitchell & Burge to achieve their potential and remain successful. Our physician-focused business and accounting practices can help you • control your overhead • optimize your collections • minimize your personal and corporate taxes • plan for retirement • shelter and transfer wealth If you want a healthier, more viable practice, call us today. See what we can do for you. 330.659.5985 (Akron) • 330.722.5249 (Medina) 2150 N. Cleveland-Massillon Rd, Akron so is your opportunity for growth. Another way to look at it is to consider a hypothetical example with numbers. Let's say you invest $10,000 in bonds and $10,000 in stocks at the beginning of the year. By year end, you see that your stake in bonds has grown to $10,475 (for a return of 4.75 percent on the year) while your stock holdings are now worth $11,560 (or a 15.6 percent return). While that's a nice overall return for your portfolio, your investment mix in stocks and bonds has strayed from the 50-50 you started with. At this point, your portfolio is 52.5% stocks and 47.5% bonds, and at this pace the difference could get much bigger in just a few more years. Rebalancing helps put you back in line with your original allocation. Paul Guerra is the president of Brookshire Wealth Management in Canton, OH. Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Brookshire Wealth Management is a separate entity from WFAFN. s Note: The example used is for illustration purposes only and does not reflect the performance of any specific investment.

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