I read the article about the Yale fund manager, David Swensen--how good his returns are, how he has a strict asset allocation mix and sticks to it. The article says he rebalances several times a day, if you can believe that.

 

http://www.n...ryId=6203264

 

The article gives us his not-so-secret formula, including low-fee index funds that will give us the diversification we're shooting for (and I went and found some ETF's that looked like they would do the job--I like ETF's better than funds, for no good reason):

 

30% VTSMX VTI Domestic Equity

20% VGSIX VNQ Real Estate

15% VIPSX TIP US Treasury inflation-protected Securities

15% VGTSX EFA Foreign Developed Equity

5% VEIEX VWO Emerging Market Equity

5% VFISX SHY US Treasury Bonds

5% VFITX IEF US Treasury Bonds

5% VUSTX TLT US Treasury Bond

 

(does anybody know how to insert nicely-formatted tables into these blogs?)

 

Actually, he said 15% to U.S. treasury bonds, and listed the three funds--I'm the one who split it up into 5% each.

 

So, I've set aside a portion of my IRA, and I'm going to try this, rebalancing once or twice a year.

 

I have heard that rebalancing is a nice trick, kind of like dollar cost averaging, that will keep you from wrongly timing the market, and that is a way to kind of "lock in your profits," as much as that's possible. It kind of skims off the profits of a well-performing sector and invests them in the cheaper sectors, no? With the idea that the tables may turn at some point, that the relative performance of the sectors may switch, and we'll be happy because we'll be automatically doing the best thing to maximally inflate our money.

 

So then I had the brilliant idea that I'd devote my caps page to this strategy, to see how it plays out there.

 

But then I realized that there's no way to rebalance in caps. Right? You're either in or out. I can't take some of my points earned in equities and use them to make a bigger stake in my bonds--I'm already in bonds, and every caps choice has an equal percentage of my caps portfolio.

 

Real money is going to be my test case for this one.