The Full Motley: 2Q, 2012

Another quarter has passed, and the markets have not had much activity lately.  They've gone up, and they've gone down as normal, but nothing consistent in either direction. Until this week.  The day on which I do my quarterly rebalance was built towards with six consecutive down days in the market.  Lucky me!  I'm not sure there would have been much activity in my portfolio this quarter without it.  Hence the reason experts have said rebalancing annually, like on your birthday, is sufficient.

But if you're one of the obsessive types who writes a financial blog to track your movements, then this may have been how your allocation chart could have looked this quarter:


Fund # - Real / Current / Target
Fund 24 - 25% / 0% / 25%
Fund 29 - 5% / 0% / 5%
Fund 59 - 25% / 0% / 25%
Fund 84 - 10% / 0% / 10%
Fund 85 - 25% / 0% / 25%
Fund 113 - 10% / 0% / 10%

Fortunately, there were some rounding percentages that allowed me to move small portions around, but the final amount moved was less than 1% of the portfolio so it does not show up on the chart.  But if you have a 401(k) plan to which you are no longer contributing, then rebalancing once a year or twice a year is sufficient.  Corresponding research has shown that rebalancing more frequently (e.g. daily, monthly, or even my quarterly) had no significant effect on lifetime returns over 40-50 years.  An annual rebalance is standard reference in the financial field, which is why I was surprised Vanguard released the following video:

There was a simple question, followed by a somewhat simple answer, but notice that the answer does not ever truly address the question.  It's aggravating because it feels like it is another case of the industry professionals complicating their field to keep others from being able to manage it themselves.  The further I get away from finance, the more I appreciate the aggravations of laypeople to whom the entire concept is a mystery.

Fortunately, I experienced the field from the inside for 10 years so I learned most of the finer points directly.