What's wrong with this approach?

[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.

setab

 

[Rich_by_the_Bay]

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.

 

[Texas Proud]

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.

 

[youbet]

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.