Re: What's wrong with this approach?
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.
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.