As a young child, my mother would take me to Hershey Park once each summer. There were many rides that I really enjoyed, and the Twin Turnpike was one of them. For those who are not familiar with this ride, it is a track shaped like a dog leg with two roads which are laid out parallel to each other. There were two types of gas-powered cars you could drive. On one road you could drive an antique car and on the other a sports car. I could not wait for my little legs to grow long enough so I could drive the cars rather than just be a passenger. On each road there was a center rail that would prevent the cars from going off the road if you drifted too far one way or the other. It was my goal to complete each ride without hitting the rail even once, but inevitably I would occasionally bump into it.
This amusement park ride reminds me of an investment strategy called rebalancing:
- The Roads: The roads represent an investment goal. Each road is designed to help a traveler reach a desired destination, much like the purpose of an investment account is designed to fund a specific goal.
- The Cars: The cars represent investment risk. Some accounts are designed to be more conservative with lower risk investments (antique car), and some are more aggressive with investments that have a higher level of risk (sports car).
- The Center Rail: The Center Rail represents rebalancing. Regardless of an account’s investment risk, the account’s allocation will “drift” from the original allocation due to the varied performance of the investments in the account. This change may increase or decrease the risk of your account. When investment allocations drift too far, rebalancing is a strategy which allows us to buy and sell portions of your investments to set the allocation back to its original state. This helps prevent the account from becoming too risky or too conservative for your stated goal.
Much like the center rail of the Twin Turnpike course, rebalancing is an investment strategy we utilize to help keep your investment accounts in line with your goals and your tolerance for investment risk, so you can fund and accomplish the purpose of your goal.