Is rebalancing your portfolio a good move? I wrote a guest post over at Money Ning earlier this week that addresses this very issue. Lots of folks have been asking this question since everything seems to be moving up and down together. People are questioning the value of portfolio rebalancing in this environment.
The idea behind rebalancing is to buy low and sell high. Nice concept. Let’s see how it works. Assume you have $100,000 invested: 50% in stocks and 50% in bonds. If the stocks go up from $50,000 to $60,000 and the bonds go down to $40,000 from $50,000, you no longer have the 50/50 balance. So rebalancing would require you to sell off $10,000 in stocks and buy $10,000 in bonds. Does it make sense? Not always. Why would it make sense to sell something that has done well and buy something that is doing poorly? To me it doesn’t make a lot of sense. And if the entire market is weak, why be investing at all? Bonds and stocks may be poor and cash might be the way to go. I believe that in order to make money over the long run, you have to be strategic, and rebalancing really doesn’t do that.
Other articles worth reading:
My friend Mike over at The Oblivious Investor wrote a very interesting article called, “Are stocks safer than bonds?” Read it and let me know what conclusion you come to.
Frugal Dad wrote about the dangers of credit cards for teens. An important read for you and your children.
Patrick at Cash Money Life wrote about the importance of leaving money in your retirement accounts.
There was also a nice article over at Wise Bread about the bottom in real estate prices. Nicely done!
And for a nice piece on Geithner’s toxic asset plan, check out Yet Another Blog about Money.