Rebalancing investment portfolios is a crucial, yet often overlooked, component of long-term financial health, and establishing clear rules within a trust or estate plan ensures continued management even after incapacity or death; it’s about maintaining your desired asset allocation, not chasing market gains.
What’s the Best Way to Handle Market Fluctuations?
Market fluctuations are inevitable, and without a defined rebalancing strategy, portfolios can drift from their intended risk profile; for example, if stocks perform exceptionally well, they may become a disproportionately large percentage of the portfolio, increasing overall risk. A common rule is the “percentage-of-portfolio” method, where you sell assets that have increased beyond a predetermined threshold – say, 5% above your target allocation – and use the proceeds to buy assets that have fallen below their target. Consider this: according to a study by Vanguard, consistent rebalancing can add as much as 0.35% to annual returns over the long term. Many investors also utilize calendar-based rebalancing, such as quarterly or annually, regardless of market performance, providing a disciplined approach.
How Often Should I Rebalance My Investments?
The ideal rebalancing frequency depends on several factors, including market volatility, portfolio size, and investment goals; a highly volatile market may require more frequent adjustments, while a larger portfolio may benefit from less frequent, but more substantial, rebalancing. A general guideline is to rebalance when asset allocations deviate by 5% or more from the target. However, transaction costs and tax implications should be considered; excessive trading can erode returns. I recall a client, Mr. Henderson, a retired teacher, who, after years of diligent saving, had amassed a sizable portfolio, but hadn’t rebalanced in over a decade; his portfolio had become heavily weighted in a single tech stock, exposing him to significant risk and, when the tech bubble burst, he lost a substantial portion of his savings.
What Happens to My Investments if I Become Incapacitated?
A well-drafted trust is paramount to ensuring your investment strategy continues seamlessly, even if you become incapacitated; the trust document should explicitly outline the rebalancing rules and grant your trustee the authority to implement them. Specifically, the trust needs to address how deviations from the target allocation are to be handled, the acceptable range for rebalancing, and the process for selecting investment vehicles. My neighbor, old man Fitzwilliam, a quirky inventor, didn’t have a trust; when a stroke left him unable to manage his affairs, his family scrambled to gain access to his accounts, causing delays and missed opportunities. Ultimately, they were forced to liquidate some assets at unfavorable prices, significantly reducing his estate’s value. According to the National Academy of Elder Law Attorneys, approximately 55% of Americans do not have essential estate planning documents, leaving their assets vulnerable.
Can a Trustee Adjust My Investment Strategy?
While a trustee has a fiduciary duty to follow the terms of the trust, there may be circumstances where adjusting the investment strategy is necessary; for example, a significant change in market conditions or the beneficiary’s needs might warrant a review of the rebalancing rules. However, any deviation from the established rules should be documented and justified, protecting the trustee from potential liability. I remember assisting a family whose patriarch had established a trust with very conservative rebalancing rules; over time, inflation eroded the real value of the trust assets, leaving insufficient funds to cover the beneficiary’s long-term care needs; with the court’s approval, we were able to modestly adjust the rebalancing rules to incorporate a slightly higher allocation to growth-oriented investments, ensuring the trust met its obligations. Fortunately, a clear understanding of the legal framework and a proactive approach allowed us to navigate the situation successfully, providing peace of mind for the family.
“Proper planning prevents poor performance.” – Jim Rohn
Establishing clear rebalancing rules within a trust isn’t merely about maximizing returns; it’s about safeguarding your financial legacy and ensuring your wishes are honored, even in unforeseen circumstances.
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About Steve Bliss at Escondido Probate Law:
Escondido Probate Law is an experienced probate attorney. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Escondido Probate Law. Our probate attorney will probate the estate. Attorney probate at Escondido Probate Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Escondido Probate law will petition to open probate for you. Don’t go through a costly probate call Escondido Probate Attorney Today. Call for estate planning, wills and trusts, probate too. Escondido Probate Law is a great estate lawyer. Affordable Legal Services.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
- living trust
- revocable living trust
- irrevocable trust
- family trust
- wills and trusts
- wills
- estate planning
Map To Steve Bliss Law in Temecula:
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Address:
Escondido Probate Law720 N Broadway #107, Escondido, CA 92025
(760)884-4044
Feel free to ask Attorney Steve Bliss about: “How do retirement accounts fit into an estate plan?” Or “Can probate be contested by beneficiaries or heirs?” or “What’s the difference between a living trust and a testamentary trust? and even: “What happens to my retirement accounts if I file for bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.