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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 58804  
Subject: Re: More On Re-Balancing Date: 2/17/2007 3:34 PM
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AM: "I guess I just think re-balancing periodically is a good and prudent thing to do. I don't think anyone should just let their investments run without a leash. "

We had a poster on the FIRE board who panicked in 1996, sold all his stocks, and bought 100% CDs and TIPS and other things. 11 years later, he is still saying the 'market is too high priced'....

He missed out on 1996 to 2000, and 2002-2007 market rises.

Had he diversified 50/50, he would have been so far ahead of the game.

Cash drops in value by the rate of inflation each year. If true inflation is 3% a year, and you get 5%, you are making 2% in real terms.

Maybe you might only get 20-3% real rate of return on stock, but traditionally they have been doing better.


The advantage to individual bonds or CDs is that you lock in the rate. I sure enjoyed th 7% CDs I had until they expired a year ago (darn).....

with a ladder, you aren't going to be getting the best, but won't be getting he lowest interest rate either..it averages out....

For some reason, if interest rates dropped to 1% next year (recession?) then your money market fund would pay you about 1%.......even if inlation was still 3% or more.

Many people with cash and bonds got clobbered by the high inflation of the 1975 to 1983 period with interest rates climbing to 15%....then they fell like a rock..... If you had some 30 year treasuries with 13% coupon, you could sell them for twice face value, or collect 13% interest on them for the next 29 years!....

You pays your money and takes your chances, but betting all on short term interest rates is not what most portfolios are built upon......

See the efficient frontier....


t.



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