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Interesting article and in a roundabout way validates my belief that cash can be an extremely safe investment tool.

First a comment…Jesus Christ could walk across a lake and pitch me on investing in his 2 & 20 hedge fund and I would likely tell him to take a hike. :<)

Back to cash and its connection to the views expressed in the article.

Most importantly, the truly passive investor soon goes to rebalance — perhaps quarterly, perhaps annually, it can vary according to age and risk tolerance — and notices that the 16.5% run higher for stocks has distorted the equities portion of his or her portfolio.

Here's where the passive investing portfolio kicks into high gear.
At this point, quite unconcerned about problems abroad, the tide of money in and out of the markets and other, equally irrelevant factors, the passive investor liquidates part of that gain, using the cash from selling high to buy low into some other, temporarily cheap asset class in his or her portfolio — then happily plods on.

Ok, so can anyone explain to me how rotating to bonds, based largely on a relying on the principle of reversion to the mean and balancing risk (equities went on a 16% run) is any different than raising cash after a similar run of out performance? I’d ask the same question if you took a similar mechanical (somewhat) approach to rotation within equity sectors. The only real distinction I see is that “cash” provides me with the option of attempting to take advantage of all of the volatility between the larger/longer swings in market sentiment that rebalancing attempts to take advantage of.

In fact, the less you "know" about the markets, the more likely that your long-term gains will be rock solid, come what may in the headlines.

I’ve come to agree with this as well. The only thing certain is how my portfolio(s) has performed as compared to my goals. That being the case, and because making money is my goal, taking money off the table after a decent run of out performance is the only thing that makes sense to me. Beyond that, with the funds that remain invested, I simply try to spread them around in a manner that assumes anything can happen on any given day.

Hey maybe I’m more conventional than I previously thought. (Not sure I like that.)

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