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posted on 16 November 2016

The Post-Trump Rebalancing Act

by Robert Frick

Investing Daily Article of the Week

The stock market's reaction to Donald Trump's upset victory has been calmer than expected. But while the broad indices haven't freaked out, certain sectors of the market have seen big movements.

We've talked about big moves among pharmaceutical and hospital stocks, as well as in the technology sector. Shares of oil, natural gas and coal producers have moved higher, as Robert Rapier points out, because a Trump administration is expected to be much friendlier to those industries. Individual stocks also have reacted, based on various factors related to the new president's policies or biases.

We'll continue to make recommendations based on the moves we're seeing. But today, I want to focus on a crucial investment strategy that is too often overlooked after a market shakeup: rebalancing.

Many investors assess their portfolios at the end of the year, to see how their calendar-year returns have done and (sometimes) to make tax-related sales. Consider moving the timetable up this year, maybe to Thanksgiving weekend - because the moves in sectors and individual stocks we're seeing this week could end up big enough to change the composition of your portfolio.

Let's imagine your overall retirement portfolio is 15% invested in energy, 15% in pharma and 15% in technology. A 20% move in each sector would mean that your energy and pharma allocations would now be 18%, while your technology allocation would now be only 12%.

You may decide that these new allocations are A-OK, especially if the impending Trump presidency truly is a game-changer for these sectors.

But consider that by taking profits in some of your winning energy and pharma stocks and reallocating into the beaten-down tech sector, you not only get back to your intended allocation - you also buy low and sell high, reaping the rewards of the tech rebound when it occurs, and avoiding losses in energy and pharma when those sectors come down to earth.

(Note that these sectors and allocations are for illustration only; I'm not necessarily suggesting them as appropriate for you.)

A presidential election represents a big change. This one is especially significant, given the wide policy gap between President Obama and President-Elect Trump. As sector valuations adjust, so should you.

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