Saturday, May 02, 2015

From the Archives: An apt time to rebalance - from March 2013

Author's Note: I have recently restarted my blog and I will be posting old posts as a way to show how things have changed in my original thinking versus when I wrote the article. Also, it is a great way to look back. I'll label these posts as "FromTheArchives". This post was originally written in March 2013.


Recently, it was a short week at work with the Good Friday holiday. There were only four working days available. Then to make matters worse, I was coming off a few days of vacation. But all of this lamenting makes it important to reflect on the upside of something that I decided to do recently: rebalance.

At my current position, I am fortunate to have a 401k match and safe harbor contribution that I will continue to cherish as long as I have it. Additionally, I am working to continue to put myself in a better financial situation each month. One major way in which I do this is to aggressively monitor my retirement accounts. I think this is essential because of the downturn I experienced. Of course, I strongly agree that market timing is a loser's game and that long term buy and hold investing of index-based/passive mutual funds with low fees is the best way to invest for the average investor for any medium to long-term goal.

Unfortunately, my work plan does not allow me to invest in such funds within my retirement account and with that kind of free money coming my way, I am not exactly in a position to look a gift horse in the mouth. So, what is there to do? I need to continue to monitor my asset allocation with respect to investment choice: stock, bonds, cash, commodities, real estate etc.

For me, at this point, the smart money is telling me that we cannot expect to have double digit returns in the next series of years (more than 5, less than 20) which is going to be the majority of the time that my money is generating growth for my retirement account. So, if that is the case, I need to strongly consider the amount of growth I expect. Personally, I believe that we'll probably see 7 percent growth for the period I care about (reinvesting dividends).

All that said, I think that the markets are risky for me personally. I want to be feeling good about my accounts, not have the fear that in 3 months I could lose 50% again. So, I am stuck. I don't want to put it into cash because over 50 years, my money will be worth less than the toilet paper it could buy because of the inflationary pressures. I read Bob Brinker and he continues to exclaim that deflation is much more of an issue, but the long term trend is inflation, for sure.

The result for me is that I continue to invest in the accounts that are available to me in my retirement account where I get the match, over and above the match. For the money that is invested in the accounts, I simply try to spread it out over various assets to get some diversification and just accept the fact that the fees are unfortunately going to eat into some of the return. But the far better way to think about it in my view is to be greatful to have something; something's better than nothing.

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