The Summer Spending Rebound

From Summer Splurge to Fall Savings

It is that time of year when children are heading back to school. Schedules, routines, and “normal” life seem to be getting put back in place. Summer has a special way of disrupting those routines and schedules, but it also has a way of blowing your monthly budget. Between family vacations, no school, weekend getaways, seasonal shopping, and eating out a little more than usual, your wallet can quickly drain beyond what you may have even budgeted for. By late August, the reality hits when the credit card statement comes in, and you think to yourself, where did it all go?

There is good news for those who were shocked when they saw the amount that was spent, and it was far from expectations/budget: it’s fixable. The goal right now isn't to punish yourself for the fun you had, but to reset and rebalance so you can get back on track.

Just like having your kids checked up at the doctor before returning to school, it’s time for you to have a financial checkup to benefit the future months of spending. When you address budget variances, it is also a good time to check your overall portfolio drift. Together, these actions can help you, as an investor, build a stronger financial foundation.

Treating the Budgetary Summer Aftermath

Summer spending aftereffects can create long-term financial drag if left unaddressed. Studies have shown that nearly 25% of summer vacationers charge expenses to a credit card without paying them off right away. This creates a snowball effect as carrying these balances into the fall can create a problem that is harder to fix with time. It is easier to break this habit sooner rather than later. This is why you open the statements to review them, rather than pretending they don't exist.

One of the top things that I advise clients about is that not only do their investments compound, but their debt can too. Staying on top of your budget and adjusting as needed is essential to a solid financial plan. As one of my favorite sayings goes, “A goal without a plan is just a wish.”

Portfolio Drift – The Importance of Monitoring/Rebalancing 

While personal cash flow is being restored, capital allocations must also be optimized. Portfolio rebalancing systematically trims asset classes that have performed well and redistributes those gains into underperforming assets. The primary objective of rebalancing is risk mitigation, not maximizing short-term performance. Without intervention, portfolios naturally experience asset drift; a prolonged equity bull market can quietly shift a conservative 60/40 allocation into a volatile 75/25 mix, exposing the investor to far more risk than their underlying tolerance permits. Practical rebalancing can manage asset drift using two primary execution strategies: Portfolios are evaluated on a strict, pre-scheduled frequency (e.g., semi-annually or annually) regardless of specific market movements. This creates a highly disciplined, automated approach that prevents emotional decision-making. For the Threshold-Based (Tolerance Band) Strategy, rebalancing occurs only when an asset class moves past a specific percentage boundary relative to its target allocation. Industry standards typically rely on absolute bands of ±5% or relative bands via the 5/25 rule (rebalancing when a major position drifts by 5% in absolute terms, or a smaller position drifts by 25% of its original target weight). This responsive approach minimizes unnecessary transactions during low-volatility periods.

When investing for the long term, a portfolio’s asset allocations will change due to market fluctuations. This can cause individual asset classes to stray from the original targets. If we have too little or too much exposure to a particular asset class, we could increase our risk and potentially reduce the portfolio’s long-term returns.

For example, First Financial Wealth Management’s MODEL 60/40 portfolio over the last 12 months has returned, on average, over 16.25%, with over 26% coming from equities and over 3.5% coming from fixed income. As you can see from that example, the equities have greatly outperformed the fixed income. Therefore, we would start to see portfolios drift up in equities and be over-allocated. This is when we step in to discuss a strategy to shift market gains from equities to fixed income, preserve the funds accumulated, and keep the assets within the target allocation. Rebalancing a portfolio helps to:

• Reduce Volatility – Rebalancing helps minimize portfolio fluctuations.
• Improve Returns – Regular rebalancing can lead to better long-term performance.
• Enhance Discipline – Encourages investors to stay focused on the investment strategy.

When talking with clients each year, we review many different data points in their finances, but we always make sure to look at their overall allocation compared to the set objective. We recommend reviewing your investments yearly; however, there may be times when it is warranted to check them more frequently. It depends on the amount of market fluctuation in each time frame. Once an asset allocation has strayed more than 5-10% from the set objective (i.e., a 60/40 portfolio is now 70/30), it is a good time to discuss a possible rebalance.

Additional Considerations of Rebalancing 

Portfolio realignment is not free of friction. Investors must carefully navigate wealth-degrading mechanics like transaction fees and tax liabilities. For tax-sheltered rebalancing (IRAs, 401(k)s), you can sell appreciated assets and swap them into underweight positions without triggering immediate capital gains tax liabilities. For taxable accounts, selling appreciated assets in a standard brokerage account triggers realized capital gains taxes. To reduce this friction, consider Cash Flow Rebalancing: rather than selling your winning investments, direct your regular savings, dividends, or interest payouts exclusively toward buying underweight asset classes until the balance is restored.

• Frequent Checking – Avoid checking your investments too frequently (daily/weekly). This can create a false sense of urgency when you don't actually need to act. This could result in overtrading and negatively impact long-term returns.
• Tax Considerations – When rebalancing in a qualified account (401k, 403(b), IRAs), you do not have to worry about the tax consequences, as these are all tax-deferred. You must always check what needs to be sold in after-tax/brokerage accounts, as selling these investments will trigger tax consequences. You can help mitigate this by selling losing positions to offset capital gains or by tax-loss harvesting.