Wednesday I felt the sting of catching the blade and not the handle. Tis but a flesh would, right?
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This is my first greater-that-just-a-market-correction experience--it's supposed to be good for us, right? We're still accumulating, so the lower prices are good. But there's enough negativity (which according the Efficient Market Hypothesis, is supposed to be priced into the market) to still be unnerving. During market peaks/bubbles, the thought is that "this time it's different". That exists at the bottom too. What if things don't recover? That 50% fall requires a 100% increase just to get back where you started. I guess we're not at the "Death of Equities" stage yet, but it might be a long slog back to being ahead.
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Our allocation plan is 45% US, 30% International, 20% Bonds/Fixed and 5% real estate. The market plummet was one reason to rebalance. The other was that I had recently vested at work. This resulted in the 5 years of employer matching being added into my 401a. Not knowing exactly when it was being deposited (October 15), or how much (considerably more than in my personally directed portion), I directed it to a money market in the account and planned on redirecting it fairly quickly.
There are multiple school of thought on rebalancing:
- One is that it's not that big of a deal--the gains from buying low/selling high is diminished by the loss of "momentum" in classes that are highly volatile (think selling out of real estate or emerging markets in 2005, missing out on a year plus of continued high growth).
- Another is the annual/set schedule rebalance--fixed, pre-determined times to rebalance, generally a year or more apart.
- Another is when asset classes get outside of a pre-determined range, it is time to rebalance, say +/- 5% from a large target.
Unlucky.
Good think I didn't do all the rebalancing, but it was still about 75% of it.
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1 comment:
I'm guessing you have seen the historical analyses that go like "if you were out of the market on just xxx days of the last yyy years, your returns in that time would have been zzz less than if you had stayed in for all days in that time." xxx is usually tiny and zzz is huge. Of course the counter argument goes "the chances of you picking the right xxx days is so low as to be impossible (like winning the lottery twice)."
Regardless, just thinking about these scenarios points out how stupid market timing is in long term investments, and spurred me to go rebalance from 75% bond/25% stock to 100% u.s. stock index.
And, being devil's advocate for your situation, all your scenarios for rebalancing preclude market timing in the short term, so you shouldn't worry about it! But it is hard to replace feelings like lucky/unlucky with smart/dumb when you can be smart, unlucky and poor!
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