Avoiding Zombie Portfolios | Smith Bruer Advisors

Avoiding Zombie Portfolios

By Steve Hiraga

The Walking Dead has taught me many things in preparation for a zombie apocalypse;

  • ammo will always be available
  • exploration of buildings will always result in finding zombies
  • walking zombies > running zombies

Most importantly, I have learned that as survivors we will eventually start to pay less and less attention to the zombies. They are just a fact of life. It is their ubiquity however, that amplifies their threat. Drop your guard and whoops, you just got bit. The occasion is rare when a character expresses in a moment of clarity the fact that maybe they shouldn’t be worried about anything else but zombie extermination. No zombies = no threat. But basically people seem to stop paying attention.

A lack of attention can hurt us in our investment portfolios as well. Apathy allows our portfolios to become zombies, something other than what they once were. At the start of any investment plan involving asset allocation there is engagement. Either on the investor’s own or with the help of an advisor a plan is put into place; generally a percentage of assets invested in equities and the remainder in fixed income and cash based on an appropriate strategy. For a period of time after implementation engagement remains high, the investor may even remember their username and password. Eventually other things reclaim the attention afforded the portfolio and the apathy grows. And then you get bit.

Your portfolio is a living thing, dynamic and active. Your assets are growing or declining and your attention or lack thereof doesn’t change that. Generally assets grow and decline at different rates and that can result in an allocation that doesn’t match the original ratio. For example, a 70/30 portfolio will experience secular bull and bear markets over a long enough time period. With no attention the 70/30 could become unbalanced; 75/25…..77/23…..65/35…..60/40. Your portfolio has become a zombie, something different than what it once was, wandering around the woods looking to feed.

The good news is that unlike in the world of The Walking Dead there is a cure. Rebalance your portfolios on a scheduled basis to prevent too much variance from your original target. This will result in a portfolio less vulnerable to volatility and in line with your original goals and tolerance for risk. Don’t get bit.