Why 5%?

Hello and welcome to this month's edition of The Big Question. This month's big question pertains to our rebalancing strategy: why 5%? As in, why do we rebalance our clients' accounts each time the S&P 500 moves up or down 5% from the last time that we've rebalanced? It's something that's worked tremendously well for us and our clients over the past 20 plus years, since our CEO Jerry Davidse first began utilizing it. Generated from the investment approach of many of the biggest endowments and investment managers in the world, we piggybacked off this idea to implement an approach that we felt allowed us to best accomplish three hugely important things, three things that we feel would help nearly any investor achieve excellent results. Our 5% trigger point allows us to, one, remove the emotion, two, remove the guesswork, and three, stay proactive.

Now, we've all been there, and we've all felt it. Anyone who says they haven't is likely not telling you the truth. The market is down 20 to 30% or more, there's seemingly no end in sight, and everywhere you look, all you hear is, 'This is just the beginning. This is only going to get worse. This is only going to go deeper.' Or the flip side: a bull market is in full force, there's also no end in sight, on the surface everything looks rosy, and the market can only continue to go up until it doesn't. In each of these scenarios, emotions are running rampant. Whether it's a heightened sense of fear or a heightened sense of jubilation, both are working against us in those moments. That is why we love this 5% trigger point. Regardless of what the market is doing in that moment, or how our emotions may be working on us, we're able to remain committed to our core investment strategy.

Additionally, we've yet to see anyone reliably predict the market's behavior in the short term. Instead, it's usually some combination of experts providing their opinion, opinions that, mind you, often have a very low hit rate, leaving us, the investor, with questions like, 'Will this continue? Can this continue? And if so, for how long?' A very, very difficult game to play, one we here at Presilium aim to avoid at all costs. Hence, the 5% trigger point.

And lastly, these buying and selling opportunities often come at unexpected times, moments where just days or even hours before, the market was incredibly calm before flipping a switch into extreme uncertainty and extreme volatility, at least for the moment. If you do nothing, waiting to see how it plays out or waiting for that exact right moment, you may end up watching an incredible opportunity pass you by. But if you have something in place that allows you to stay very agile, very proactive in these moments, you better position yourself to add up many little wins over time, i.e. our 5% trigger point.

Investing itself, staying invested, remaining invested, all could be difficult enough. Our goal is to create things we can build into our process to increase our likelihood for success over time. Now, part of this is by building out the proper asset allocation within the context of your goals, and yet another aspect of this is by ensuring that you stay invested throughout whatever the market brings us, by removing the emotion, removing the guesswork, and staying proactive. Thanks again for joining me everyone, until next month.