Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
What's wrong with this approach?
Old 08-16-2006, 09:55 AM   #1
Recycles dryer sheets
 
Join Date: Dec 2005
Posts: 388
What's wrong with this approach?

I know the conventional wisdom is to balance your portfolio by investing in your underperforming sectors using profits from your better performing sectors. Although that seems a bit counter intuitive to a journalism/humanities person like myself, I'll accept it at least for the sake of argument. However, what is wrong with gleaning those same gains from your winners and parking them in a "safe" place such as a MM or CD? You can then let your initial investments build again; glean them again, etc. You might sacrifice a few percentage points, but you might also protect your gains from being wiped out. Just a thought.

setab
__________________

__________________
I told you I'd taunt you a second time.
setab is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: What's wrong with this approach?
Old 08-16-2006, 10:05 AM   #2
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: What's wrong with this approach?

Quote:
Originally Posted by setab
I know the conventional wisdom is to balance your portfolio by investing in your underperforming sectors using profits from your better performing sectors. Although that seems a bit counter intuitive to a journalism/humanities person like myself, I'll accept it at least for the sake of argument. However, what is wrong with gleaning those same gains from your winners and parking them in a "safe" place such as a MM or CD? You can then let your initial investments build again; glean them again, etc. You might sacrifice a few percentage points, but you might also protect your gains from being wiped out. Just a thought.
I think you are just talking about periodic rebalancing. If your expenses for the year are already met, you rebalance by just shifting some money from the winners to the losers for that year. If you need proceeds for living expenses, you sell the winners to meet expenses, and use any left-over gains for rebalancing.

There is no "requirement" that you shift all of your gains to your losers, and indeed I suspect many or even most prune some of their gains to meet expenses in full or in part in just that way.
__________________

__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Re: What's wrong with this approach?
Old 08-16-2006, 10:13 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,275
Re: What's wrong with this approach?

Setab...

What you are doing is rebalancing... but you are slowly increasing your cash position... how long are you going to do this Until cash is 10%, 20%, 30% of your portfolio

Then, you are hurting your long term return as cash is historically not a great investment.
__________________
Texas Proud is offline   Reply With Quote
Re: What's wrong with this approach?
Old 08-16-2006, 10:53 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Re: What's wrong with this approach?

Quote:
Originally Posted by setab
what is wrong with gleaning those same gains from your winners and parking them in a "safe" place such as a MM or CD?*
There's nothing "wrong" with having a percentage of your investment portfolio allocated to cash. But, whether the source of those dollars is from rebalancing or from new money is inconsequential, a moot point. Use tools, such as Firecalc, to help you determine the allocation percentages you want to use, then rebalance to acheive that goal. The percentage you choose to have in cash is up to you. The source of the dollars is meaningless.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Rebalancing the Portfolio - What is your approach chinaco FIRE and Money 9 05-15-2007 02:38 PM
Anything wrong with this? setab Life after FIRE 6 11-28-2006 09:47 AM
oil markets got it wrong mathjak107 FIRE and Money 6 06-09-2006 11:38 PM
A Decision Analysis approach to SWR choices Rich_by_the_Bay FIRE and Money 27 03-09-2006 09:18 AM
work attitude after FIRE: how do you approach it? ladelfina Life after FIRE 7 01-29-2006 09:35 PM

 

 
All times are GMT -6. The time now is 06:40 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.