I heard an interesting experiment about marshmallows and self-control, and how it links to success, but I will save my thoughts on that for next month. Today, I re-balanced my 401(k) amidst a strong market climb. If you disregard the notable exceptions of 2000 and 2008, then most election years have seen gains in the market. From the market activity we have seen hitherto this year, 2012 is unlikely to join 2000 and 2008 as a notable exception.
If anything, this year has been extra normal. My movement for this quarter reflects that point nicely.
Vanguard Explorer Fund 24% / -1% / 25%
Vanguard High-Yield Corporate Fund 5% / x / 5%
Vanguard Total Stock Market Fund 25% /
x / 25%
Vanguard PRIMECAP Fund 26% / +1% / 25%
Vanguard Total Bond Market Fund 10% /
x / 10%
Vanguard Total Int'l Stock Fund 10% /
x / 10%
Although only 1% of movement was actually required (my actively-managed PRIMECAP fund made up what my aggressive Explorer fund has been lacking), I really pulled from four funds slightly above their target and put it into two funds: the aforementioned Explorer fund and the Total Bond Market Fund.
Obviously, there has not been too much movement in the major markets, which is a good sign, especially in contrast to all the "gloomers & doomers" (as Mo Anari calls them) expecting the bond market to retreat sharply into a freefall (as Mo Ansari himself is predicting). Not that I argue with that mentality; since December 2010, I have been expecting the bond market to retreat as well. Ditto for the precious metals, which as a whole have seen a far worse annual return (arguably) than almost any bond fund, especially these past 12 months.
Regardless, this quarterly update is a strong indicator that my quarterly re-balancing is not essential to successfully self-managing a financial portfolio. Most experts advise an annual re-balance is sufficient, and a quick review of the nominal movements made in my past several quarterly updates, it is easy to support that logic. But, finance is my hobby so I personally enjoy re-balancing more frequently. The professionals managing mutual funds re-balance every single day, so it is my self-serving belief that re-balancing quarterly will not harm my portfolio.
I noticed Walter Updegrave responded to a question last month on Money.CNN.com from a 25-year-old investor concerned about making a poor decision that could cost hundreds of thousands of dollars by retirement. I especially like the reply, citing a few key principles "like keeping it simple, holding the line on costs, diversifying broadly, and ignoring the jabber pundits who advocate buying & selling, any flubs you make aren't likely to wreak mortal damage." He also noted that "even though many (professionals) like to make investing seem complicated(,) it's really not all that difficult."
Having started my retirement investing on the day I turned 25 myself, I understand exactly what he means. Perfection will not be achieved in investing any sooner than it will be achieved in any other endeavor, but for all the complexity above the basics, it is only necessary to understand that basics. I usually support concepts supporting "less is more," and investment knowledge may fit that mentality nicely. Understanding investments fully will not always generate success. And the difference in returns between people who simply understand the basics to those who have a solid understanding behind more of the complexities is a strong argument against investing in the time to understand the markets better.
When I first started in finance, someone at my first job told the story about a client asking an adviser for the next hot stock tip, and the professional replied, "even if I told you, you wouldn't know what to do with it." I think I was the only one in the room to understand what that meant: knowing what you don't know is safer than only partly learning things.
After the basics, your personal finances can be as complex or as simple as you want to make them.
