Lately, the financial media lately is full of articles with reminders of the August 2008 to March 2009 great stock market crash. Stock market highs tend to bring out these historical reminders.
Mutual fund and money managers are frequently quoted in these articles. Investment professionals talk on and on about financial plans, investment policy statements, and risk/reward.
Don’t pay much attention to fancy investment management terms. The Minnesota clients I work with have simple investment management goals. They don’t want to lose big chunks of their money when the stock market falls again.
Rebalancing is a common investment management theme. The problem is that rebalancing does not provide protection if the entire stock market goes down.
Rebalancing does not provide safety of your stock market principal. It never has, and it never will. Regardless of how many times you read an article about rebalancing.
Rebalancing suggests that on randomly selected dates, like on your dog’s birthday, you make changes in your stock and bond market holdings.
On that date, you sell part of your stock market holdings that have gone up in value the most. With those proceeds, you then buy more of your stock and bond market holdings that have gone up in value the least.
You read that correctly. You sell the part of your investments that has worked the best recently. And you take that money and buy more of your investments that have not worked well at all. All with the hope that someday those investments will begin to work.
There is not any part of your life where the concept of rebalancing would work out for you. The financial experts think that rebalancing is supposed to work out for your stock market investments.
When you lost market value on your home a few years ago, did you run out and buy another house?
If you have a bad experience with your car insurance company, do you keep your car insurance policy with them on the renewal date?
There is only one investment management strategy that will preserve your stock market investments. That is to do it yourself. Take the time to make sure that you are comfortable with the risk you take owning stocks now.
When the stock market falls, the majority of investment professionals have no game plan. Their only idea is to rebalance. And to hope for the best.
Ric Lager
Lager & Company, Inc.
