Just last week I had my annual look at my pension plans to see how they were doing. They did pretty good in fact. The American and European equity portions were up 25% and 22% respectively. Those were some gains.
So I was thinking; the global economy still hasn’t fully recovered, so if I stick with it, maybe that 25% will become a 45% ? That’s why it is was so hard to sell 5% of my holding in each fund. But I have to practice what I preach and sell 5% of growing asset classes is what I did. This is why:
Selling high, buying low makes perfect sense.
I may not have sold at the height of the market, but I don’t know when the market will be at its highest. I can’t time the market. No one can; at least not on a consistent basis. If Warren Buffet claims he can’t do it, what chance do I have?
My pension is going to be invested for at least another 27 years. If I rebalance in January of each year, I’ll get some wrong and I’ll get some right. It will even itself out over time.
Asset allocation accounts for 91.5% of returns over the long term.
I implemented a diversified investment strategy 3 years ago with specified percentages allocated to each asset class. Those percentages had become skewed and it was no longer the investment strategy that I wanted. This is particularly important to people who don’t want much risk exposure. If the equity proportion of your portfolio increases too much during a bull run, you risk greater losses in a falling market. This is exactly what you didn’t sign up for when implementing a reduced risk portfolio.