![\"\"](\"\/hazelbakerfinancial\/wp-content\/uploads\/sites\/23\/2019\/10\/Process.jpg\" "\\"about-us\\"")
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Personalized Process<\/p>\n
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Psychologically, all investors, including professionals, are prone to using simplistic \u201crules of thumb\u201d, or decision-making biases when deciding when to buy or sell a given asset. Some of the biases are involuntary, subconscious, and very difficult to identify by self analysis. We sometimes make irrational decisions that we are unable to recognize as irrational because they \u201cfeel\u201d right.<\/p>\n
Have you known someone whose investment habit is to careen from idea to idea based on the headline news of the day? Do you have friends who cash-out their investments at the first sign of trouble, only to return to markets later when the coast appears to be clear, (i.e. when prices are higher than when they sold)? If so, you are witnessing a qualitative approach to investing. I call this \u201cgut feeling\u201d investing. Alternatives to this management-by-guessing approach, are quantitative, or mathematical methodologies.<\/p>\n
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The first step in a quantitative approach is to spread one\u2019s assets across multiple asset classes, this is known as \u201casset allocation\u201d. Once one\u2019s assets are allocated appropriately to balance risk and reward according to the person\u2019s goal, and time to work toward that goal (a science in itself), one then needs a method of keeping in balance so that risks are not allowed to build uncontrollably with the passage of time. It is here that the potential for psychological biases to invade a good plan is a risk. That is, it is possible to build a portfolio scientifically in the beginning, but then use a gut-feeling approach to determine when to re-balance, or allow feelings to dictate changes in the allocation policy itself in reaction to environmental events.<\/p>\n
I employ a quantitative approach I call \u201cRange Rebalancing\u201d. This is a method of account management whereby an accepted percentage range is assigned to each asset class in a portfolio. Asset values in each category are allowed to \u201cfloat\u201d within a pre-specified range from the initial target allocation. When an asset category moves in value beyond a \u201cre-balance trigger\u201d, then an appropriate amount of that asset will be purchased or sold only to the degree necessary to bring the category back to within a tighter range of the original target percentage known as the \u201ctolerance band\u201d. This is money management by policy, rather than feelings.<\/p>\n
No strategy assures success or protects against loss.<\/p>\n
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Rebalancing a portfolio may cause investors to incur tax liabilities and\/or transaction costs and does not ensure a profit or protect against loss.<\/em><\/p>\n [\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":" Personalized Process Psychologically, all investors, including professionals, are prone to using simplistic \u201crules of thumb\u201d, or decision-making biases when deciding when to buy or sell a given asset. Some of the biases are involuntary, subconscious, and very difficult to identify by self analysis. We sometimes make irrational decisions that we are unable to recognize as […]<\/p>\n","protected":false},"author":1,"featured_media":11132,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"class_list":["post-7286","page","type-page","status-publish","has-post-thumbnail","hentry"],"yoast_head":"\n