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Trader Q&A: How Often Should I Review My Trade Plan When Managing My Portfolio?

Schwab’s Trading Services Team takes questions from viewers about trade plans, down markets and more.

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Jeffrey Abalos: Ok. Great. Kathy, I’m going to ask you this one. As you were talking about rebalancing. It’s from Alan here in New York City. How often should I review my trade plan when managing my portfolio?

Kathy Jones: Well, again I would say perhaps quarterly. Abel, you do this with clients all the time but I would say perhaps quarterly. But it may depend on how much the markets have moved. So if you have a really quiet time when nothing much is going on, you may not need to really do much. If it’s a really busy time and a lot is happening, you might want to do it more frequently. But I often find and in my group, we also provide some of the advice on financial planning. I often find that the big changes you make in your portfolio have to do with your life and not with the market, kids going to school, buying a new home, selling a business, whatever it is. That’s often what triggers a real review.

Jeffrey Abalos: Yeah. I’d agree yeah. Absolutely. And then also to tie that in, if you’re discussing more on the micro level I have a trade plan set up. I mean I’m literally trading the markets every day. Should I be checking back in with that strategy? You probably don’t want to look into that strategy every single day. Otherwise you won’t give it enough longevity to see if it’s successful. But personally, one thing I say is give it maybe a month or two months or at the very least paper trade it for about two weeks and see what happens before you decide to make any tweaks to your trade plan. All right.

Sal from Texas, Sal, how are you? Sal asks how should I prepare for the next market downturn? And Kathy, I think you are all over this one.

Kathy Jones: You should have some bonds.

Jeffrey Abalos: Yeah.

Kathy Jones:   Some high-quality bonds in your portfolio. I mean one of the best diversifiers if the stock market does go down in a meaningful way, one of the best diversifiers historically has been treasury bonds. And as boring as they are and as low as the yields are, they hang in there and they tend to perform well when the market goes into a downturn. And that’s why they’re part of a portfolio. There’s a lot of other types of bonds. There’s corporate bonds and foreign bonds, lots of different choices. But good old treasury bonds really serve that purpose.

Jeffrey Abalos: Ok. Now I’ve been watching on Bloomberg and CNBC and reading in newspapers that some analysts are actually advocating for doing cash during a market downturn. What maybe some of the pros but also the cons to allocating to cash in a market downturn?

Kathy Jones: Yeah. There’s nothing wrong with holding cash. I think one of the problems that you run into is oftentimes people move to cash and they stay there forever. And in the recent years, obviously that hasn’t earned you any money at all. And so that can be kind of a trap in and of itself that reduces your return. If you have a better thought out strategy you can certainly have some cash. We usually suggest you have a couple of years’ worth of your living expenses kind of covered by short term securities. But then you probably want to have something that’s going to generate a little bit more income and have some more upside potential in the portfolio as well.

Jeffrey Abalos: Got you. Abel, you’ve sat down with many, many clients I know. When you have that discussion as Kathy mentioned, I’ve been sitting in cash. I’ve been waiting, I’ve been waiting, I’ve been waiting. And it just seems to go up. I’m waiting for this pull back. It never comes to fruition. What are some of the things a client should be keeping in mind when they have those large cash positions?

Abel Oonnoonny: Yeah. No. I think when we go through an analysis with clients again it goes back to goals. It goes back to how are we going to help you to achieve your goals. And when I go through, typically when I go through a plan with a client and they’re on cash, that plan in terms of achieving those goals especially if it’s a longer-term goal is less likely. And so oftentimes when we go through a plan, we come up with an allocation that fits with their comfort with risk and volatility and their timeframes. We can put them in a position where they can get to where they want to go and not worry so much about volatility and risk.

Jeffrey Abalos: Ok. Great. This one is from Shane in California. Shane asks is there a scenario where bonds should not be part of my portfolio. Great question. I can’t think of that particular situation but has either one of you come across it?

Kathy Jones:   Well, I will. I came across it with Warren Buffet. So he has famously said that he doesn’t own bonds. He’s a very long-term investor and he’s also a billionaire. So it doesn’t really matter if the equity market goes down 50 or 60 percent. I’m pretty sure Warren Buffet and everyone in his family will be fine for a couple of generations. But for most people, if the equity market – we have a repeat of ’08, ’09, most people are not in that position. And so, I would say that that’s kind of the one person that I can think of that doesn’t probably need bonds.

Abel Oonnoonny: Yeah. And I would say for clients that have really short-term goals, under two years typically, that’s where I would advocate that they stay in cash for those needs.

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