Are You Scared, Confused, Or Lost About Investing?

Scaredy CatIn a post entitled, “How Often Should I Rebalance My 401k?” I share with readers my year to date performance, investments, 401k balance, rebalancing thought process, the reason why I’m taking profits, and the minimum number of times I recommend everybody rebalance a year (twice). I even include my predictions for 2012 which I wrote in December of 2011 to provide some background. If I’m right or wrong, there is nowhere to hide!

Instead of dissenters talking about the thought process behind how often to rebalance and ways to maximize wealth, they focused on the definition of rebalancing! Granted I take a liberal view on the term rebalancing, but there is no rule on how an individual’s portfolio asset allocation should be and how they should rebalance. You can have three stock funds and one bond fund each with a 25% weighting that gets adjusted once a year. Or you can have 10 funds where you meticulously rebalance every quarter because you’re a scaredy cat.

My asset allocation tends to be 80% stocks / 20% bonds or 20% stocks / 80% bonds. In other words, I take more aggressive bets when I believe in something, and want to have 20% dry powder to continue pressing when I’ve entered too soon. I can never pick the bottom, but I have conviction in what I do. Of course I could be wrong about taking profits after QE3 +16% YTD this September, but if I am wrong at least I’ve provided you with some background on my thought process.

So why is it that I cannot rebalance back to 20% stocks / 80% bonds from where I was in March after taking profits during the Spring runup? Let’s talk about why people don’t focus on the main points, aren’t willing to provide an opinion of where the market is going, and don’t want to share their own YTD performance but freely criticize others. I’ll also share a funny story and some solutions if you want to learn more.

UNDERSTANDING WHY PEOPLE DON’T FOCUS ON THE MAIN POINTS

1) Lack of knowledge. People focus on what they understand, and ignore what they don’t. Instead of discussing the 10-year bond yield and comparing expected returns to one’s own YTD returns to come to a rebalancing decision, commenters focus on the definition of the word “rebalancing.” It’s much easier to try and discredit my view of what rebalancing is rather than talk finance, even though there is no rule on what asset allocation and rebalancing should be! My 401K rebalancing post was written to give readers a mental framework on what to think about before rebalancing. The goal is to remind everyone that not everything goes up in a straight line. Just 4-5 months ago, all everybody talked about was how Europe would bring us all down.

2) Fear of investing. When you fear something, you attack something. Why do you think some people who were deemed witches burned at the stake? It’s human nature to attack opinions of others if you fear you are being left behind. If you’re not up about at least 12% in 2012, you are underperforming. If you’ve got lots of cash sitting in a money market account yielding 0.2%, you are definitely falling behind. It takes guts to invest and put yourself out there. It’s scary, but if you never take risks, you will never make any returns.

3) Everybody is on track. Hopefully, this is what’s really going on from commenters who criticize and offer no details about their own investment performance, history, and balances. It would be absolutely strange to criticize if you are 35 years old with only $200,000 in your 401K that’s up only 8%. It would be equally peculiar to criticize if you are 50 years old, not working, have no alternative income streams, and provide no history. Instead of attacking, you should be keeping an open mind, sharing ideas, asking questions and perhaps learn something a long the way. Hence, I’m really bullish about the financial well being of my criticizers because I don’t know anybody who would be as stupid to criticize without doing at least as well.

WHAT TO DO IF YOU’RE INTIMIDATED BY INVESTING

I understand that investing can be daunting. I spent 13 years in finance, got a graduate degree in finance and real estate, write a personal finance blog, am Series 7/63 registered, and have been investing since 1996 and I still lose money or underperform on occassion. Yet, I will continue to try my best and learn from my mistakes.

After I published my 401K rebalancing post I got an e-mail response from a subscriber saying, “This is so over my head, but I feel like we should sit down and try to do this together. So, when?

Well, well. Your place or mine? I thought to myself. I was pretty impressed by her courage to ask me out at 10pm PST. But, in all good form I responded back if she would like to do a financial consulting session, I’ve got some time end of the week.

While I was responding to her, she e-mailed again, “Oh, sorry. I meant to forward this to my husband. So sorry, Sam!

I couldn’t help but chuckle and smile. This is what I’m talking about! Sitting down with your loved one and having an open conversation about investing and your finances! You can’t just ignore things because hope is not an investment strategy!

* Sit down with your loved ones and have a conversation. Whether your loved one is your spouse, brother, sister, cousin, friend, choose someone who cares for your well being and have a talk. Step 1 from my 401K Rebalancing Though Process section is: Ask yourself if you are bullish or bearish about the future. Then explain to someone why you think the way you do. If you can explain to someone your stance in a coherent manner, you might be onto something. When you talk things out with someone you feel safe with, good things happen. You will surprise yourself with how much you know!

* Enrich yourself with knowledge. Start reading the Wall St. Journal, Financial Times, and the Money section of the USA Today to get acquainted with terms. Watch a little bit of CNBC propaganda and frequently visit your favorite finance blogs. You need to know what is going on in the world from a political and macroeconomic stand point in order to come up with an investment thesis. As I wrote in I’ve Seen The Future And It Looks So Bright, part of creating wealth is anticipating the future and betting on the future, whether you agree with the future or not!

* Invest in target date funds. These funds are professionally managed and take into consideration your target date of retirement to come up with their idea of a right balance of stocks, bonds, and other investments. Of course, you should read the prospectus and understand if their approach makes sense to you before investing. Essentially, target date funds are a dummies guide to investing, which is fine! The lowest cost way to invest is through Exchange Traded Funds. There is an ETF for practically everything. But, the types of ETFs you invest in are entirely up to you. The same goes with index funds. However, you’ve got to make your own asset allocation decisions as well.

* Consider entrusting your finances with a professional. There are some people who spend their lives understanding finance and investing in ways which will help you make money. You’re not going to change the motor in your car yourself are you? If your expertise is not in finance, then its worth entrusting your finances with an expert. You’ve got CFPs, CPAs, bloggers who’ve worked in finance, and elders who’ve gone through the ups and downs to give you advice. Be open to receiving professional advice or advice from more experienced individuals, but never stop thinking for yourself. I’ve launched my career and financial consulting business if you are interested in getting help directly from me.

* Open up a CD and give yourself some time until you know more. Savings/money market accounts are only yielding about 0.1% on average. I recommend opening up a 0.99% 12-month CD by Ally Bank (as of Feb 4, 2013). You literally earn 99X more on your money as you build up your confidence to invest in riskier assets. Ally Bank also has a 5-year CD at 1.59% and a “raise your rates” CD option as well. They are currently the highest rated online bank today. CDs are FDIC insured up to $250,000 per individual.

THERE IS MORE MONEY THAN YOU THINK

Everything is rational. We do things that enrich and make us happy and we stop doing things that impoverish and make us sad. Everybody I know in the offline world maxes out their 401K and is pretty much in the 401K by age guidelines I have. Then again, everybody I know understands the importance of saving for the future.

If you are scared of investing, don’t be! Come with an open mind and be ready to ask questions and share your ideas on Financial Samurai. I encourage every one of you who is doing well to continue challenging my ideas and theories because that is how we all learn. And for those of you who would rather attack, I’m all for it. But please, at least tell us a little about yourself, your experience, your assets, and your performance so we have a better idea!

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About the Author: Sam began investing his own money ever since he first opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college on Wall Street. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 35 largely due to his investments that now generate over six figures a year in passive income. Sam now spends his time playing tennis, spending time with family, and writing online to help others achieve financial freedom.

Photo: Scared kitten in Istanbul, SD.

Best,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Mike says

    It’s best to be able to figure out some of those little mistakes and how to correct them without losing too much money in the process. It’s kinda like P2P Lending->you have to be able to figure out the best ways to ensure that you investing in something that is going to pay back.

  2. says

    I think when people see some of your articles they are actually intimidated and frustrated. As far as not offering up there own performance and thoughts on the future that could lead as to a lack of knowledge or afraid of typing something that makes them look dumb. I take everything as a learning experience. I am not the smartest person in the room and don’t want to be. I enjoy learning and don’t believe those are a criticizing are doing well. I find it to be the complete opposite in most cases. It seems those who knock things tend to just have a difference of opinion or simply just aren’t doing anything at all so they try to make what you are doing seem stupid or not needed.

    Fear and lack of knowledge is the biggest setbacks I see in most people. Whenever stocks and investing comes up people seem to get quiet and move on to something like sports or the new iPhone.

    • says

      I put myself out there all the time. If my predictions suck, then so be it! Nowhere to hide, but at least I write WHY the way I think the way I do.

      That’s the thing w/ investing. We are wrong ALL THE TIME! And with each wrong, we hopefully can learn from it, invest better, and move on. Criticizing the minutia is pointless.

  3. says

    I think that many people don’t know much about investing. Furthermore, those who do, aren’t confident in their knowledge so skirt around the topic. It’s a sticky topic and it’s also a complicated one, and many people avoid it.

  4. says

    I think some peopel dont’ comment because they don’t invest, some don’t comment because they invest but pay someone else to actually pay attention to what’s happening, and .. well, that’s all I can come up with. Investing is complicated, so if posts aren’t really basic, well, I just don’t undersatnd what’s happening. :-/

  5. says

    I think two things come into play:

    1) Wall Street quotes prices daily, which makes people hypersensitive to decisions. Compare how people feel about the market to how people feel about gas prices. Everyone knows the price of gas and the S&P 500 index value because the prices are painted everywhere for all to see all the time.

    2) You can never know everything about an investment, ever. Contrast this to personal budgeting problems or debt payoff comparisons which have plain and easily understood expected value.

    Wall Street is the only place in the world where you get paid for being right and decimated for being wrong. You can screw up 99% of personal finance decisions and do just fine. I think that plays into the way people feel about investing, actively or passively. As a lifelong student of finance, every day I feel like I know more than I did the day before. However, I don’t think there will ever be a day that I feel like I know everything there is to know. It’s impossible. Wall Street gives no closure – it’s entirely dynamic. That is why I love it, though – I’m always learning.

    All that said, I totally agree with you that if you’re going to optimize one thing, make it your investments. A rudimentary understanding of mathematics tells us that the quickest way to juice our “wealth equation” is to focus on exponential growth. Obviously investments provide that exponential growth, so it’s the variable that, when tweaked and perfected, gives us the biggest change in the final outcome.

    • says

      Great points JT. And you are right. We are “lifelong students of finance.” If we are wrong, we lose money or underperform. There’s no sidestepping the issue.

      I always appreciate your input b/c they are often very well thought out. I don’t care if you lose money, have a tiny portfolio or whatever, you give an opinion and BACK IT UP with a coherent argument!

  6. says

    I think some people were criticizing you because you were using the term rebalancing in a way that isn’t standard. It would be like defining left as 3 rights around the block.

    I also find it interesting that you feel that the only advice worth listening to are from those that have more assets and/or a higher YTD return than you. Anyone with a divergent opinion who doesn’t have the same level of assets or return should just sit quietly in the corner and learn? I’m not sure if you background is corporate finance or investment finance, but anyone that doesn’t have occational bad years in the investing world is likely running some type of fraud.

    You are offering financial consulting advice, are you a registered investment advisor too!? Your list of achievements really continues to impress! I don’t know where you find the time.

    • says

      I think you are misreading the post, which is easy to do b/c I write long ones.

      I’m happy to listen to advice from those who underperform, have less experience, and have less in assets. This is the foundation of Financial Samurai, to have an open platform of discussion. But, I’m not happy if these people attack or criticize. And if you are going to attack and criticize me in my own house instead of have a dialogue about the content of the post, then it’s game on. As I write in my post, “I spent 13 years in finance, got a graduate degree in finance and real estate, write a personal finance blog, am Series 7/63 registered, and have been investing since 1996 and I still lose money or underperform on occasion.”

      So tell me, what is the “standard” term for rebalancing? And please Kari share with us your background, assets, YTD performance etc so we have a better idea of where you are coming from.

      What I also want to know, and perhaps this is a topic of a future post, how does a registered investment advisors come to grips with advising people about money if they don’t have as much experience or don’t have as much wealth as their clients at least. Does being a CFP suddenly make you an expert?

      Thx!

      • says

        Sam, I think the industry standard definition is similar to what is listed on Investopedia:

        Definition of ‘Rebalancing’
        The process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.

        Investopedia explains ‘Rebalancing’
        For example, say your original target asset allocation was 50% stocks and 50% bonds. If your stocks performed well during the period, it could have increased the stock weighting of your portfolio to 70%. You may then decide to sell some of your stocks and buy bonds to get it back to your original target allocation of 50/50.

        Read more: investopedia.com/terms/r/rebalancing.asp

        You’ll note that the implicit idea of rebalancing is that you have a desired asset allocation that doesn’t change. Going from 20% stocks to 80% stocks is not the common definition of rebalancing. That is the common actions usually referred to as “market timing.” Telling people that market timing is rebalancing simply creates confusion.

        “…because I don’t know anybody who would be as stupid to criticize without doing at least as well.” – Sam

        Those don’t look like the words of someone happy to listen to the advice of those who underperform.

        My YTD return is 32% on my taxable portfolio.

        My question about the RIA concerns the both fudiciary duty that they have for clients when giving advice (in most states) and the ability to actually give advice. That is not a requirement for those with the series 7/63 and other sales designations. In some circles a CFP does make you an expert. That would depend on your difinition though.

        • says

          Karl, the problem with investing is that people think there is some type of magical standard out there they must follow. I’m trying to encourage people to think for themselves.

          Congrats on your 32% return. But, what about comparing apples apples though and talk about your 401K portfolio, which is the subject of the previous post and this post? Is your taxable portfolio your biggest portfolio? Your 32% does help prove my point #3 where I believe everybody who criticizes is on track and doing well. On the internet, everybody is doing well.

          Why not put our your predictions and highlight your balances? I think you are in the financial planning business right? It will help give you more credibility if that is what you want.

      • Jerry Curl says

        It’s easy to focus only on things you know. I don’t think most people can have an intellectual discussion on investing, and I agree it’s great to have an open dialogue without attack.

        We all losing money sometime. The point is to learn.

        It’s funny the CultOfMoney throws out his taxable portfolio return instead of his main portfolio. You can have just $25,000 in your Etrade account and be up $7,000 while your main portfolio underperforms. I doubt he’ll tell you his balance on either portfolio, so don’t bother. Everybody is an investment guru on the internet!

        • says

          Jerry, I used my taxable portfolio because it is my largest. Additionally, in my tax deferred accounts I only invest in bonds or similar securities. It is significantly more tax efficient that way. I’d rather not share my balances.

  7. says

    I finally took the plunge and made my first ever investment (in a mutual fund). It was always something that I would do tomorrow or that I would read up on another time… So glad I made the first step!

    • says

      The great thing is, once you take the plunge and buy that fund or stock, you suddenly become enamored with the markets or what the management of the company is doing. It’s a GREAT learning experience. Investing is all about learning along w/ great returns of course.

  8. says

    I’m certainly in favor of more active management of investments/speculations. The 10y rate is pretty much telling us not to expect and returns from investments on average So aggressively re-balancing (or whatever you want to call it) expecting reversion to the 10y rate of return plus perhaps a small risk premium seems pretty sensible.

  9. FatChance says

    Funny. I have several hundred thousand dollars invested but I could not tell you exactly what I have without looking. I am not sure why that is. I consider myself pretty damn smart when it comes to personal finances, but not so much as far as investing goes. I have no debt and I take home roughly 50% of my gross with the rest going to ESPP and 401K and HSA and taxes. I get a rather large tax refund (yeah, I know about interest free lending to the good old US) and use this refund to travel to Europe/Africa once a year so I am not changing that.

    I have a variety of funds in my 401K $150
    I have a variety of funds in wife’s dormant ROTH 401K $92K
    I have a REIT for almost $50K
    Several IRAs (4) 1 with a variable annuity $9K, 1 with commodities $10K, 1 with large dividend stocks $10K and 1 I inherited that is professionally managed $400K
    I have company ESPP for $20K
    I sold a house and am holding a note for $150K
    I have a whole life plan worth $10-15 cash value
    Kids 529 $36K
    Kids Fidelity fund $5K

    I plan to move toward a more coherent plan going forward which is why I read this blog and several others. The professionally managed fund does the worst of all my accounts after taking fees into account. I was up 17% overall YTD at the first of the month but that has come back since. I am considering moving everything that is not in a 401K or IRA into Vanguard total market index fund in the next few weeks. I would add to that the MRD I need to take annually. I am almost 50 and have no real desire to do anything too risky at this point.

    In the past I used to pick stocks (Foodmaker, Ford, Apple, KMart) Recently I am studying dividend stocks with long history of dividend growth. I have also been thinking of buying a rental house near my own house as a hedge against inflation. But I would rather not take a loan to do this so I may be 1-3 years away from that.

  10. says

    I think a fair amount of people are either too lazy to invest or they think you have to have a lot of money in order to invest. Sure you make more when you have a bigger base, but things do add up even when you start small. We all have to start somewhere! I wish I opened my 401k many years beforr I did because even $25-50 a month is better than 0!

    • says

      The greatest variable to creating a nice nest egg is savings in the beginning. I would say for most people, savings is the #1 variable, and then comes investment performance.

      Start early and contribute often everyone!

  11. says

    Perhaps I missed it, but I am surprised you are not talking about low cost Index Funds. Those are easy to manage and outperform pretty much all other stock investments. While picking stocks can be a nightmare for anyone, an Index Fund makes investing easy. For a novice or experienced investor, it seems the way to go.

    • says

      I highlighted target date funds and ETFs, which include index funds.

      * Invest in target date funds. These funds are professionally managed and take into consideration your target date of retirement to come up with their idea of a right balance of stocks, bonds, and other investments. Of course, you should read the prospectus and understand if their approach makes sense to you before investing. Essentially, target date funds are a dummies guide to investing, which is fine! The lowest cost way to invest is through Exchange Traded Funds. There is an ETF for practically everything. But, the types of ETFs you invest in are entirely up to you. The same goes with index funds. However, you’ve got to make your own asset allocation decisions as well.

  12. says

    Most people take away what they want to. They may be unfamiliar with terminology or lack of overall understanding, but they read, comprehend and interpret what they want to. People who comment are not smarter or more successful. They just want to offer an opinion. I often find this in my classroom when I ask for an explanation of their opinion. It reveals little actually thinking or deep thought.

    My crystal ball is fuzzy at best regarding the market. I try to protect myself in my asset allocation. I recognize that I do not know enough to make any predictions. I am 100% equities, but reasonably diverse.

    • says

      Interesting anecdote about asking your students to elaborate on their opinion in your classroom Larry! Do they actually just respond back with a blank stare, hoping you forget you’re asking a question?

      I certainly have no crystal ball either, but at least I elaborate on my opinion.

  13. says

    In measuring returns investors neglect the level of risk they take vs. the returns. If you invest in securities that are twice as risky as the overall market and you return 24% and the market returns 16% you actually underperformed. Over several years 99% of investors underperform the market, especially compared to the level of risk they take especially in individual stocks.

    The best returns is in a total market index ETF with low cost, I invest mine in Vanguard Total Market Index (VTI). Over the past 10 years I have beat the overall market, but when I factor in the level of risk I took vs. the reward I actually underperfomed. I still pick individual stocks because I enjoy it and I take a higher level of risk with these stocks.

  14. says

    “After I published my 401K rebalancing post I got an e-mail response from a subscriber saying, “This is so over my head, but I feel like we should sit down and try to do this together. So, when?”

    Well, well. Your place or mine? I thought to myself. I was pretty impressed by her courage to ask me out at 10pm PST. But, in all good form I responded back if she would like to do a financial consulting session, I’ve got some time end of the week.

    While I was responding to her, she e-mailed again, “Oh, sorry. I meant to forward this to my husband. So sorry, Sam!”

    HAHAHA! BEST anecdote ever.

    Ah, the Internet Punctuation Police. I know them well. Also, the Selective Readers (an extension of selective hearing), which is what’s behind people who don’t necessarily hone in on the key points you’re trying to make. We project our own biases/impressions.

    • says

      Nice! You’re the only one to highlight my e-mail investing romance!

      I thought I was getting lucky in the most random of settings!

      Selective reading and commenting is fun. Perhaps I’ll just ignore them. BUT, it’s so fun to challenge too!

  15. Swank says

    I know I appreciate your view on investing and how you allocate your funds based on your knowledge in the financial landscape. Your ability to assess the markets and take a gut feeling based on historical results, years of navigating the market, and analytic approach is impressive. I do not have the same hands on approach that you have since I don’t have the same background but I am constantly learning and trying to understand how to be better and more knowledgeable.
    Please don’t let other commenters that write disparaging remarks get you down especially since they don’t have the wherewithal to even write why they are commenting so harshly. Know that even if what you are saying is 100% on point they need to hear they may not be ready for that knowledge. They may be stuck in the same situation and refuse to change. One of my favorite quotes for that type of person is “You are always going to get what you have always gotten if you always do what you have always done.”
    All this to say thank you for you transparency and I appreciate the shared knowledge.

    • says

      Thanks Swank! And thanks for keeping an open mind! Talking things out really helps in the investment learning process, b/c goodness knows, there are so many different variables to learn.

  16. Darwin's Money says

    People need to be realistic about their risk tolerance and investment horizon. I know way too many people in their 20s and 30s with their 401ks in money market and bonds. They’re going to end up losing money in real terms over the next 30 years. I’m 100% stocks in anything with a 20 year horizon or more (Roth IRA, 401k, etc).

  17. says

    I’m afraid to go rebalance like that because what if I’m wrong? I know that sticking to my asset allocation works OK for the long run. I have never heard of rebalancing like that until I read it here. I don’t think I have the gut to do it especially now that I don’t have a job to help smooth out with dollar cost averaging.

    • says

      True. If you do no enjoy investing or are fully into it, might as well buy a total market ETF or index fund and let it ride and pray for the best. People who love investing get things wrong all the time, myself included, so why bother?

      I just want to encourage people to check their portfolios at least twice a year and not be zombies. To learn about their holdings and formulate an opinion about the economy, markets, and politics.

  18. Michael says

    Call me a market timer… whatever… I managed to move into cash instruments and a few small positions that aren’t directly correlated to the broad market indices. The old positions are down a couple of percent from when I “re-balanced” out of them, meanwhile my new positions have either lost less, or eked out a gain.

    So call me a market timer… I’ll take my nearly 15% gain YTD and laugh all the way to the bank.

    • Michael says

      And additionally… my feelings about the “true nature” of re-balancing has a lot to do with altering your holdings to reflect your risk appetite. What sane person comes to a conclusion regarding market risk (60/40 split, 50/50 split, whatever) and doesn’t ever re-evaluate the circumstances that generate that risk?

      If the market situation has changed, and your assessment of the circumstances lead you to be willing to accept more or less risk, I firmly believe that it is within the auspices of re-balancing to adjust your asset allocation to equities up or down, or even set a new target allocation entirely!

  19. says

    With any complicated topic it’s always good to make sure you’re hearing (reading) what the other person really means to say. Although you did “change the balance” of your portfolio, I agree that many other people (including me) take the word to have a different meaning. If someone tries to talk to you about “investing” but you find out later that all they hold is TIPS with a 0% real return, do you think they’re using the right word? If someone talks about their “severance package” but you find out later that their employer only gave them the minimum required by law, are they being accurate?

    As for why everyone commented on that and ignored the rest of the post, maybe you were so right that there was nothing else to argue with :) As you pointed out, you have a lot of experience and still make mistakes. I believe a lot of people talking about personal finance are focused on a lower experience level, but it’s nice to see some more complex ideas.

    Personally I rebalance in the commonly-used sense and make minor adjustments when I think it’s worthwhile, because I like to adjust to the current prices but also make sure I’m comfortable with my holdings if I fall asleep for the next 20 years (I don’t want another job managing investments). Currently our portfolio is about 4.5% bonds because I don’t like the yields and future prospects (but there might still be a good buying opportunity for stocks). The rest is pretty evenly split between a Canadian index (the local market, under-diversified but in the right currency), the S&P 500 (it has some nice companies in it), and EAFE (most of the other good/big ones are there). I reduced the S&P allocation by a couple of % because it’s gotten more expensive this year and could get overvalued if the momentum keeps going. I’m letting the EAFE allocation drift up but I’m worried the bad news might stop soon! The Canadian index hasn’t done much this year so the value there is still not bad.

    I don’t have the exact annualized rate of return but the portfolio as a whole (about 2/3 of it was invested this year at various times) is up by 5.9% in 18 months. That’s a bit disappointing because I like to see falling prices when I’m buying more. Up until a couple of months ago it was hovering around 0 which was nice to see. I would be very happy if the total return goes negative soon. We can only hope…

  20. Carrie says

    I remember reading that post you wrote about rebalancing and (silently) agreeing with the comments regarding on your mis-use of that word. I think that no matter what topic you talk about, it is important that the readers are truly understanding what you are saying. When several people point out that you may not be using the commonly understood definition of the term, it may be best to consider whether or not they have a point. I’m not saying that commenters can’t be wrong, but when that many people find a need to point it out…perhaps its worth considering what they are saying, rather than just assuming that they are ignoring the main message.

    True, the main point of your post wasn’t to argue the definition of “re-balancing”, but when the word is in the title of post and shows up several times in the post, it is important that the readers have an understanding of what you mean when you use that word. Suppose I give a talk about the interactions between NK cells and viruses, and use the terms in a way that most people don’t use….then my talk wouldn’t exactly be accurate.

    Also, using the term correctly doesn’t have anything to do with what the “right” asset allocation should be, nor does it have anything to do with a person’s investment performance. It’s simply a definition. It does not outline a standard or magical investment strategy. Just like how an ‘index fund” has a definition that most people agree on….but knowing the definition has nothing to do with how one would want to incorporate index funds into his/her investment strategy or how his/her performance. I hope i’m making sense. Just because one understands a definition doesn’t mean he/she can is an investment expert, or vice versa. I have to say, I am a bit disappointed that you seem unable to take some very simple criticism.

    As for me, I’m more of a index funds kinda gal right now, so I’ll leave the complex stuff up to you. So, I have 20% in total bonds index, 35% in total u.s. stock market index, and 35% in total international stock index. I’m too much of a noob to be able to do any market predictions, but I am happy with my asset allocation and plan on rebalancing it to 20%bond/80% stock about twice a year. Thanks!

    • says

      Good points and I welcome criticism. I actually love criticism so long as people can provide a coherent argument and provide some perspective.

      “Noobs” can criticize all they want, but at least provide some substance and also discuss the main points as well. It’s the best way to learn.

  21. says

    Well, I must say that I’m up another 18% so far this year (24% last year). My guidelines were relatively simple. Large portion of allocation towards either dividend stocks or in core account until used to purchase stocks.

    While I’ve grown one of my portfolios from supporting only 150 shares of SDRL up to now being able to support 250+ shares of it at the current prices, I also want to wait until it gets down to a lower value to get not only the appreciation of stock price, but also the dividend (not limited only to that particular stock).

    My 401k however is kind of limited in the funds that I can purchase (even though it’s with Schwab), and thus I’ve switched about 15% of that portfolio out to cash and 10% into bonds, and the remainder in a few different funds that have actually increase over the past 2 years. This is one reason I’m considering moving a larger portion over to my traditional IRA but still have enough put into 401k to get the company match. Probably the more effective method for even larger growth of my portfolio to be sure.

    In all honesty I “rebalance” as you’ve put it above, 2-7 times every year as I’m actively trying to grow my portfolio as much as possible. :-)

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