I’m saddened he didn’t talk about the higher long term gains obtained by purposeful periodic rebalancing of a diversified portfolio in that article. He told the person to stop trying to time the market, but didn’t tell her how to capture the gains that she was worried about losing by a meaningful method.

Every month, 3 months, or 6 months, which ever makes more sense from your brokerage’s fee structure, your stock/bond/risk mix should be rebalanced to fit your target risk profile. For someone in their 20s, this will look different than someone in their 40s, but usually will get out of wack after a couple years of investments changing value. Recently (luckily) your stocks will have risen so much that you’re all of a sudden overexposed to risk. If someone would have entered the market in say, 1999, by 2002, they would have found themselves overly conservative, with only their low risk items holding much of their value.

Determine the mix you actually want again (usually the same or just a little more conservative than last time and move money between investments to approach this goal. Why would you let the market dictate the amount of risk you’re exposed to when you can choose an amount of risk that suits you better?

This will capture gains from bull markets, while mitigate losses from bear markets.

Keep in mind, fees will *eat you alive* if you do this the wrong way. Make sure your brokerage fees align with this. Don’t make small corrections, as the gains from this method aren’t worth the transaction costs (unless they’re free, which some plans have a number of per some period). Some plans have X free per month free trades. In that case, monthly rebalancing is cheaper from a transactional perspective. Each month you do the trades that bring you closer to your ideal risk ratios with your free trades.

–Michael

OMG, did you know credit cards are a *business* and they actually, you know, try to make *money* off you when you use their service!!1one!?

Here I thought they were just free magical money mills that you don’t have to pay back forever and ever.