I have been remiss in updating this blog since my 10th anniversary in February, but I have consistently been rebalancing quarterly. This week’s rebalance came amid a volatile week in the market. Losses of 800 points one day or gains of 500 points the next day evened out to end the week with a tolerable 300-point drop. Reactions to the daily volatility would be enough to convince market-watchers that big changes were occurring daily, but from a weekly view, those changes were rather minimal. This is the difference between investing for the short-term or investing for the long run. Our retirement investments are long-term investments. It is important to understand why (and how) the investments work, and that responsibility is falling to the individual – as many other things are as well.
This week, I was listening to a panel of Asian Americans speak about their cultural difference between their home countries (or origin countries, for those who were born here) and the United States, and a lot of the differences and obstacles that they identified sounded to be as much generational situations as cultural differences. The old way of succeeding was to keep quiet, keep your head down, and you would be rewarded for loyalty. The new way of succeeding is to carve out a path for yourself and you will be rewarded with opportunity.
Times are changing, in many ways – for better or worse. Among these changes, financial stability might have been one of the advantages lost in the shift away from "keep quiet and keep your head down" being sound advice. Just as workers are not rewarded for loyalty to companies; companies are not rewarded for loyalty to the workers. The idea of retirement pensions upon completion of a 40-year career with a single company is passe (both the pension, and the 40-year career with a single company). Now we speak up for ourselves. We assert our freedoms and individuality nowadays, but our financial stability was included in that shift. We can celebrate greater financial freedom now, but that requires taking the same approach of speaking up, asking questions and not keeping our heads down. Our financial success is up to us.
Investing in mutual funds spreads loyalty (the risks and rewards) to a single company by diversifying. Diversifying will mitigate the rewards when that company succeeds greatly, but it will limit the losses if the company fails. My investments are in the Vanguard Total Stock Market Index Fund, Vanguard PRIMECAP Fund, Vanguard Total International Stock Index Fund, Vanguard Bond Market Index Fund, and Vanguard Total International Bond Index Fund. These five investments provide me access to the global market, from domestic equities (both passive and active) to international equities, as well as domestic and international bonds. While I could diversify further with higher risk investments in alternative investments (such as real estate or commodities, including gold), I keep my 401k spread across the global marketplace and leave those investments for my individual accounts, such as my Roth IRA.
Interestingly, my rebalance for this quarter pulled from all assets to place into the Total International Stock Index Fund. That fund had been underperforming relative to the other funds in my account, but there are many strategic advantages to putting more money into that fund at this time, including the slowing American economy and/or the weakening American dollar will hit my largest funds the hardest. Whether the international index appreciates or just holds ground better, it is a good investment away from those investments that are most at-risk of those looming threats. If I read the headlines in the financial media (and I do), then I could become convinced that those threats are large and nearing. In a reactionary state of mind, I would pull more from those at-risk investments and shuffle the money into this international index. But much as the weekly market movement was relatively minor compared to the daily volatility seen, watching investments too closely can be hazardous to your wealth (and mental health). I will just endure what may come with my quarterly rebalancing. I am not convinced that any changes would be best in the long run, which is where I am truly invested.
