Over the years in the management of one’s investments, there would likely be occasions where the portfolio would be changed or takes another form, and an apt word to describe this is pivoting. I had shared a post about the pivoting of our Bedokian Portfolio (Portfolio Pivoting).
Picture generated by Gemini
Contrary to what most people think, portfolio pivoting is not about tactical asset allocation, where the make-up of the various asset classes goes in accordance with the prevailing or projected market and/or economic cycles, nor a huge switch from, say, 100% equities to 100% bonds, but rather a strategic decision based on foreseeable changes in one’s long-term objectives, while maintaining a similar mix of assets. A good example would be the reduction of growth equities and shift to more income-generating equities and bonds to prep for one’s retirement phase of life.
In our case, we pivoted to a slightly aggressive stance as we brought forward our step-down age that necessitated a quicker realization of our target amount. Even so, the new step-down year is still some time away, hence the pivot is a well-thought out, deliberate action taken, not an overnight whim. Once the objective is set, some planning and patience are needed when executing the pivoting itself.
For instance, using our example, we are reducing the bond component in our Bedokian Portfolio, and that meant the safety buffer to the volatile nature of equities and real estate investment trusts (REITs) is lowered. However, it must be carried out as the change of strategic goals required this move.
The reduction itself is not done in one fell swoop. As with most things in portfolio management, gradual execution is preferred over abrupt action (hence it took us between six and nine months to complete). Rather than liquidating the bond holdings outright, the approach taken is to redirect new capital injections (i.e., from our own cash and dividends/interest received) away from bonds and toward the equities and REIT components instead. Over time, and without the need for hasty selling, the weightings shift naturally in the intended direction.
It is also worth noting that pivoting, by its nature, introduces a transitional period where the portfolio may not perfectly reflect either the old or the new target allocation. This is normal and to be expected. The important thing is that the direction of travel is clear, and that each portfolio action, whether a new purchase, a reinvestment of dividends, or an occasional rebalancing, nudges the overall mix closer to the desired end state.
A question that sometimes arises is: how does one know when a pivot is truly warranted, as opposed to being a reaction to external noise? In my humble opinion, the clearest signal is whether the underlying personal circumstance has changed in a meaningful and lasting way: a revised retirement timeline, a significant shift in income, or a change in family obligations, etc. If none of these apply, then what feels like a need to pivot may simply be the discomfort of a volatile market period, which portfolio rebalancing is better suited to address.
Portfolio pivoting, done thoughtfully and for the right reasons, is a natural part of the investor's journey. The key, as always, is that the evolution is led by clarity of purpose, and not by the noise of the day.
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