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Author: omalleypm Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75531  
Subject: Anticipating a bull market Date: 1/11/2003 8:11 AM
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My retirement spreadsheets assume a 7% annual return. My question is if we do get a real bull market and our investments increase more than 7%, at what point would you move some money to less volatile investments? Do you let it ride or say after a 10% increase sell some.

I ask because although I would love to see my funds increase 20 or 30% like in the late 90's, I also don't want to see them decrease the same amount as they did in the 2000's.

Thanks
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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 35529 of 75531
Subject: Re: Anticipating a bull market Date: 1/11/2003 11:37 AM
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Author: omalleypm Date: 1/11/03 8:11 AM Number: 35525
My retirement spreadsheets assume a 7% annual return. My question is if we do get a real bull market and our investments increase more than 7%, at what point would you move some money to less volatile investments? Do you let it ride or say after a 10% increase sell some.

I ask because although I would love to see my funds increase 20 or 30% like in the late 90's, I also don't want to see them decrease the same amount as they did in the 2000's.


History has shown, over and over, that proper asset allocation is the largest contributor to long term stock market gains. Set your asset allocation where you want it to be and leave it alone. The only times you should change it are when you have major life changes like getting married, having kids, retiring, etc.

Asset allocation should be set primarily by your time horizon until retirement and tolerance for risk. The fact that you mention that you don't want to see decreases again like the 2000's, says a lot about your current portfolio and risk tolerance. I would say from that one statement that you should set your allocation for low to moderate risk. One way to do that would be using a total stock market index and a short term bond index in a 50/50 or 60/40 equity/bond mix.

If you can't resist trying to time the market, take some amount of money out and use it for that purpose. Who knows, you may hit it big. Odds are greatly against it, though.

I highly recommend William Bernstein's book 'The Intelligent Asset Allocator'.

Russ

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