The Full Motley: 1Q, 2012 (supplement)

I have never done an entry like this one before, but I wanted to do it because I noticed today that my 401(k) balance has tripled since February 2009, and I haven't even contributed to it since last April.

Last week I made my first quarterly rebalance of 2012, and I noted that the benefit of anchoring your portfolio around your asset allocation and rebalacing to your target allocation at predetermined intervals is that it takes the guess work out of investing, and then, (A) you don't have to hire a professional, and (B) you won't react emotionally, and you'll make wiser moves in the long-run by focusing on the long term.

Therefore, you never want to reassess your moves after one week since it just increases the temptation of reacting emotionally, but if you have the self-discipline to check your portfolio's performance frequently while holding true to your allocation & intervals, then there isn't much harm in checking in more often.

That was the case today when I heard that the markets were up, but I was curious how the recent string of increases had affected my portfolio.  Out of curiosity, I checked the price per share from last week when my reallocation took affect to the most recent price per share in the market.

• 24 = $79.16 < $81.03 (higher)
• 29 = $5.85 = 5.85 (even)
• 59 = $66.31 < $67.20 (higher)
• 84 = $11.03 > $11.02 (lower)
• 85 = $32.55 < $33.01 (higher)
• 113 = $28.72 < $29.20 (higher)

Four of my six funds have gone higher (including BOTH of the funds that I moved out of) and the total decline in the other two funds was only $.01.

There are two ways to analyze this information.  On the one hand, I could have been better off staying in the two funds highlighted in red for another week (which indicate the funds where I pulled money out yesterday).  On the other hand, the money I took from those funds has already been made back so the higher performing funds are already returning higher and the "profits" taken from there are holding stable or increasing in their own rights.

Obviously, making another change today would be foolish based on the small balance in my portfolio, but if you wanted to invest in an allocation that rebalanced frequently (such as daily), then the best fund for you is a "fund of funds" or a balanced fund which sets an allocation closely matching your preference.

Incidentally, the Target Retirement funds are a perfect example of that philosophy.  They have an allocation, and their investment managers seek to maintain that allocation daily, regardless of market performance.  While they miss out on having a large stake in the funds as asset classes that are rising, they also avoid giving their earnings back when those asset classes retreat.  As I've noted often in this blog, all investments fall much faster than they rise.

In my opinion, it is not worth the investment risk.  And, without question, it isn't worth the time investment to track your investments daily over the 30+ years.  If anyone had that much "spare" time, then I'd strongly recommend volunteering somewhere.  Life is about more than just money (although, understanding investments is invaluable knowledge).