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Its not fundamentally crazy. In one sense, standard investing advice is to periodically rebalance between investment classes when your holdings diverge too muc
by gizmo686 7y ago
Its not fundamentally crazy.
In one sense, standard investing advice is to periodically rebalance between investment classes when your holdings diverge too much from you desired profile. In this, for a "simple" investor, that would probably mean transfering from bonds to stocks; since the portion of your portfolio that is in stocks recently fell substantially below your desired portion.
Assuming an efficient market, it is almost a no brainer that you should rebalance. Since your risk profile didn't change from a month ago, and stocks are being correctly valued, your portfolio is now overly conservative.
If you dont believe the market is effiecient, the question becomes 'in what way is the market inefficient?'. If you believe it is now undervalues stocks, you should buy them since they are now on sale for a bargain price.
Personally, my view is that the market is irrational, but I don't know how; so I am planning on not reballancing until after the dust settles. This minimizes the downside risk caused by me not knowing what I am doing.
- milesvp 7y agoYou may be missing one of the more fundamental reason to rebalance your portfolio at predetermined points in time to a predetermined balance. That it takes emotion out of the equation. By rebalancing, say, every time you put money into your IRA, you're always "selling high and buying low" without the risk that you'll let emotion overturn a generally good investing strategy. While you may actually be in a position to time the market, my understanding is that empirical evidence suggests that the vast majority would be better off not trying to time the market. And that people who mechanically follow rebalancing procedures will tend to outperform those who rebalance based on some kind of intuition or market calculation.
- rconti 7y agoyeah, the rebalancing is a very fair point and perhaps something my long-term (401k) needs. I don't think it's being done automatically today.