Victor Colella: Yeah, and we specifically create a calendar. I can work my way through the year knowing when those distributions are going to happen. I mean, I have to buy something: Groceries, a car, give a gift. Rick Winters: If I know that in advance, I should build my calendar, something we use here as a gatekeeper, so we don’t wind up buying distributions at the wrong time or maybe I’m aware of a cashflow that’s going to come from a fund so I can use it. Mutual funds have a strong history of following the same distribution schedule, year after year roughly around the same date. I wind up owning the same ones I owned the year prior. Think about it, when I get to January I don’t buy a whole slew of new mutual funds. November and December are when you would normally see some of the larger distributions. Rick Winters: A lot of people think of this-especially if you’re a mutual fund investor, you’re not new to distributions. Rick, talk about fund distributions and why we build a calendar here. This one relates to mutual fund distributions, so know your fund distributions and build a calendar if you can. Victor Colella: Speaking of calendars, that’s the second habit. So said another way, let life dictate your rebalance strategy, not the other way around. Maybe you put it into the funds that have lagged. Victor Colella: Yes, you should be taking those distributions maybe from those parts of the portfolio that have done really well, and vice versa when it comes to when you get money that’s coming into the account. If I know I’m going to have things going on in my portfolio that are probably going to be distributions and other things that are going on that are going to create tax situations, maybe I should use those to my advantage. You’re going to be realizing capital gains a lot of the time and that comes to the cost of tax. Rick Winters: Yeah, because if you’re sitting there and you sell in January just as a rule, well you’re going to be doing something that really is not advantageous. Victor Colella: It may be in January, but just because it’s, say, January doesn’t mean it’s the only month of the year that should rebalance. So when that cash pops out of a fund at one point, you can use that to turn around and maybe replenish some of your bond positions. So that habit would be to use your portfolio and the things that are going on it like distributions, the need for cashflow that could come at any time throughout the year, and use those opportunities to maybe rebalance that allocation a little bit. It’s a much wider view of how to handle that rebalancing process. But here at Adviser Investments we would not take that path. Rick Winters: Well, conventional wisdom would say in January, get back to that portfolio and rebalance it. For example, “I’m going to be 60% stocks and 40% bonds and cash.” Then, a year later, the market’s done great, and now you’re sitting on 65% stocks and 35% bonds and cash. Think about it: You’ve been spending all this time putting together a strategy, working with your adviser, thinking about it independently and you hit this target allocation. Rick Winters: Yeah, so let’s break that down a little bit. Our first habit is to rebalance continuously, not systematically. Whenever I hear there’s a list of seven actionable steps I tend to pay attention, so hopefully it has the same effect. For me, one of my favorite books is The 7 Habits of Highly Effective People. This is seven steps that you can take now to reduce your tax bill. Today we’re going to talk about the seven habits of highly effective investors. So now that I’ve inflated his ego, let’s introduce the topic. Victor Colella: That’s a fancy way to say that he likes to learn. He’s a certified financial planner, and he has earned other designations like the CRPC®, Accredited Wealth Management Advisor (AWMA®), you name the alphabet soup, he may have it. He works with individuals and institutions to help them reach their financial goals, so he’s a relationship manager here. You’ve heard him on another podcast before I think. Today, I’m joined by my colleague Rick Winters. My name’s Victor Colella, and I’m a financial planner with our planning team here at Adviser Investments.
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