Posted by This week, I started off with good intentions. I felt my portfolio needed a rebalancing and planned a few tactical re-allocations. But as we know…
“When men (or women) plan, God laughs!”
Half-way through the week, I accepted my tactical reallocation had to wait for another week as Baby S started a fever that outlasted our quick fix expectations. Market moves.
Portfolio Diversification
An important part of financial portfolio theory will tell you that diversification is a key principle. By not placing all your bets in a single basket, you minimize the risk of losses in any one side of your portfolio. At least that’s the theory (in practice it also helps if they are uncorrelated – details!).
In reality, most of us place large bets on a single career or job, with the only variation being some diversification over time (not at the same time). An example of this is as women lean in to family life in detriment of the peak years of their careers. They may reserve a small bet in the career (or on some financial security), if they remain in the workplace, but often there is not much tactical allocation going on. We tend to be all-in in individual things at one point in time.
Strategic Allocation
I seem to be going a bit financial today, unusual after so many years of staying clear of writing about anything finance. The concept of strategic allocation says:
“a wealth management or investment strategy where you determine target amounts for different asset classes and then rebalance your overall portfolio at set intervals.”
The Smart Investor’s Guide to Asset Allocation
This means the first step is to determine the asset classes or, if you are talking about life, like I am, the pillars of your life. In my case, the circles in my Venn Diagram . In the past, the buckets emerged and all had to cram for space as my large bet on a corporate finance life left so little room for other asset classes. To add to it, the way I viewed it at the time, and for many years, was not about allocation. The goal was 100% to every single thing I did. Nothing strategic about that.
Assembling the Portfolio
In the last few years, I have slowly been shifting to the concept of a portfolio and asset allocation. My most valuable asset? Time. Whether I knew about finance theory or not, something had to give. My portfolio was pulling me in all directions and it was time to do some strategic allocation.
The early versions were rudimentary – all-in at work, clear hours for kids were protected (and prioritized when family needs emerged) and charity time took the evenings. Everything else had to be squeezed in the not so frequent gaps. When sleep and exercise pushed hard on straining my portfolio, I had to reduce the overall time allocation across all my buckets, but in all honesty, the charity hours suffered the most, as I needed the night sleep. And the more I rested and took things out of my “remaining buckets”, the more I was incomplete. My portfolio returns were strained.
In times of collision, as everything suddenly was put on hold, it felt like the portfolio was a drain in my head, adding to the pressure, instead of giving me the life I wanted.
Embracing the portfolio
When I shut down my over-weight on a single asset class (my full time job), I thought I could shut everything down. In fact, I tried to force myself to do just that, so I would have the space for a whole new portfolio to emerge. But when you pull all your money out of your investments (going back to financial jargon), you are seating in cash and missing out on opportunities. Especially if you already know some of what you really want.
So it did not quite work as a reset, because my asset classes had been taking shape for a long time. Why pull out from what was already so constrained (and under-invested) for a long time, when I could slowly add to the ones I felt more attracted to (or that were more time compelling), while defining a long term plan for a mix of assets and returns. Moreover, I now had more flexibility than ever to do some rebalancing whenever I was over-weight in any one asset class. Now, I can see a world where I define a clearer strategic allocation of my energy, and rebalance from time to time, as the theory says so.
Defining Targets
I am still a numbers person at heart, so this is not all touchy-feely in my portfolio life. First, you need careful consideration of what asset classes you want and level of risk you are comfortable with. For some people, not holding an all-in full time job is not an option. For others, it is not something they would even consider. It does not have to be one or the other as well. As we said, portfolios can vary over time. Once you know what fits your own Venn Diagram, it is time to start working on the target weights:
- Some activities will yield higher financial returns, like a full time job, a consulting gig or a paid service (in my case, a board role or CEO advisory role are examples of this).
- Some activities will be higher on time consumption by default and need to have clear goals (like the charity role in my case).
- Some activities will be viewed as passions or nice to haves with no clear immediate returns, often ending relegated to a later time (like writing or learning in my case).
Analysing returns
I have done the deep dive into my Venn Diagram, so my activities are clearer than ever before. But so what? Life happens, as did January and how did my portfolio fare?
A monthly review is essential, and I have spoken about it at length in the past in the context of my bullet journal. I like to take a status check on what I have accomplished before I establish my to-dos for the next month. Historically, I have focused on what I did overall, as a way to boost my energy for the month ahead and remind myself that even if it felt I was doing only one thing (work), many other things were progressing in my life. But as I start fixing my views on a target asset allocation, then I have to analyse the returns. Here is an executive summary of my monthly review:
- I have progressed long term goals for the charity in terms of organizational change, but focused very little on fundraising and even less on financials;
- I have restarted my learning schedule through the first part of the month, as I decided to review my AI studies and go deeper , but that got shut down towards month-end in favour of whatever had a quick buck return (figuratively);
- I have slept and rested, I have worked out and journaled. Unclear whether these are circles or plain old resource limitations, but given the importance of health for me at the moment, this needs to be featured in my activity list at all times;
- I have continued to write and re-engaged in the podcast, confirming how important this area is for me in terms of being connected to women leaders and the change they are making with their businesses;
- I have slowly engaged with something called my resume and my story to ensure I am ready to address the right opportunities (aka Board Roles), but have been slow to reach out to my network;
- I have engaged to a limited extent with my angel investments and my advisory work, which is a great source of satisfaction for me and crosses 2 of my Venn diagram areas – strategy and analytics;
- I am still procrastinating on the teaching front. Impostor syndrome all over. I know I need to break it down into smaller tasks.
and so I end with a positive tone
- I excelled on the carer side as I was heavily engaged in 3 family celebrations which usually take-over January. This explains a good part of the imbalance but it was not surprising
Truth hurts some times. But I know I need to be honest every month. If you are in doubt, look at your calendar and see how you have spent your time. Is that how you want to curate your life?
Rebalancing
As I said when I first started this article, I started this week thinking I would rebalance. Instead, I finish it trying to stay afloat and just looking at the positive side. I spent more time with my son than I ever do on a regular week day playing cards and board games, building puzzles and Legos. I spent less time on small things at the charity but REALLY focused on the big things we needed to achieve. I have started the week addressing key items on my procrastination list and even made some progress on it.
Whilst half-term next week will not help in my rebalancing, I know it is part of a temporary market move. So I will set up my targets accordingly, and rebalance again at the end of the week.
When was the last time you rebalanced your portfolio?
Photo by Colton Sturgeon on Unsplash