August 18, 2011

Rebalancing Opportunities as Stocks Plummet, Treasuries Rise

U.S. Treasuries rose dramatically Thursday, putting them on pace for the best monthly return since the credit crisis. Meanwhile, stocks are getting slammed due to weaker-than-expected economic data and concerns over Europe.

In other words, this is a portfolio rebalancer’s dream.

There are a number of reasons why one should consider rebalancing before month-end:

  • A 10-year Treasury note purchased today would have a yield of just over 2%. One could likely do much better cashing in those gains for dividend paying stocks with a higher yield and a record of rising dividends.
  • Stocks are getting cheaper, even though 72% of all S&P companies have beaten earnings expectations for the current quarter.
  • There is still no evidence that the United States is heading for a recession, although growth is certainly lower than once believed.

Advisors get paid for thinking rationally during difficult periods. Rebalancing now will likely reap big rewards for clients in the coming months.

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