diversified investment strategies and rebalancing

[masraum]

I'm slowly educating myself more and more about saving and investing. I've read a few diversification plans that recommend investing equally in several different asset classes.

For instance, there's this article that recommends investing equally in 10 different classes.

Standard & Poor's 500 Index, U.S. large-cap value stocks, U.S. small-cap stocks, U.S. small-cap value stocks, U.S. real estate stocks (REITs), international large-cap stocks, international large-cap value stocks, international small-cap stocks, international small-cap value stocks, and emerging markets stocks.

I recommend that you own those 10 in equal proportions.

Then there's this plan, which is similar but has you invest equally in 12 different classes. This one goes a bit farther and recommends that each year, you rebalance your investments in the 12 classes so that you maintain the equal distribution among the 12 classes.

I don't really have much in the way of investments other than my 401k. In the past, I've just always chosen a few options, mostly indexes with low fees and invested the bulk in the S&P 500 option and then put smaller amounts in whatever remaining options I have. I've always just left the money alone and let it accrue naturally without any thought to rebalancing. With my limited options, I'm not sure how helpful rebalancing would be anyway. But if I were to rollover any of my accounts into an IRA with more options, I could diversify more in line with recommendations similar to those I linked to.

So, the purpose of all of this is to ask the brain trust about how they diversify, and even more-so, what you think about rebalancing as noted in the 7twelve plan.

[dan88911]

Well here is my 2 cents.
Yes to index funds I like Vanguard Funds.
Rebalance at least every 12 months.
You want a well diversify and properly allocated portfolio.
You want your portfolio in whats called the efficient frontier were you receive either the most return for a given degree of risk or being expose to the lest risk for given return.

That being said here is a active/passive portfolio 80% in Vanguard total stock market index
10% in Vanguard International
10% in Vanguard all -world ex -US

For Bonds I like the Vanguard Ginnie Mae Fund

All the best.

[74-911]

For one of the most simple yet effective ways to invest, suggest you read this in it's entirety:

Couch Potato Cookbook - AssetBuilder Inc., Registered Investment Advisor

I started with the Margarita recipe many years ago and have branched out to having the about 60% of my investments in the six fund recipe with the remainder in individual bonds, I bonds and CDs since I retired.

Note: you can easily do all this yourself, no need to have anyone else involved and it is very easy to manage.

[masraum]

Thanks, good info. I had always figured, if you were diversified, and one or some of your investments are doing good, leave the money where it is to reap the benefits of compounding, but I understand the rebalancing is there to help protect against losses and volatility over the long term.

I'll read that article Jack, and yes, I plan to do my own management instead of paying someone else to do it. Besides, I'm hoping to keep the management to a minimum.

[recycled sixtie]

Originally Posted by masraum

Thanks, good info. I had always figured, if you were diversified, and one or some of your investments are doing good, leave the money where it is to reap the benefits of compounding, but I understand the rebalancing is there to help protect against losses and volatility over the long term.

I'll read that article Jack, and yes, I plan to do my own management instead of paying someone else to do it. Besides, I'm hoping to keep the management to a minimum.

When I compare my mutual funds to my stock picks the mutual funds are way ahead.
I don't mind paying a higher commission as long as the mutuals perform well. Diversification is key and being patient with mutuals pays off for me anyway.

[RWebb]

Vanguard funds will do as well as others over time - no commission & very low expenses.

a recent study showed that rebalancing adds little - surprised me

an astute manager can use different sectors and types of stocks & bonds to gain a little over the S&P500 - question is: is it worth paying him or her for that mgmt.?

[masraum]

Originally Posted by recycled sixtie

When I compare my mutual funds to my stock picks the mutual funds are way ahead.
I don't mind paying a higher commission as long as the mutuals perform well. Diversification is key and being patient with mutuals pays off for me anyway.

I don't think I will be doing much with stocks exactly. My plan is to diversify through ETFs that track index funds, so they will remain low cost (lower than an index fund usually from what I've read).

[masraum]

Originally Posted by RWebb

an astute manager can use different sectors and types of stocks & bonds to gain a little over the S&P500 - question is: is it worth paying him or her for that mgmt.?

I'm sure one can, but if you'll get one that does is the big question. I'm pretty sure there's no money back guaranty if they don't make you more...

[Scott Watkins]

The Blog | The Coffeehouse Investor

[RWebb]

Originally Posted by masraum

I'm sure one can, but if you'll get one that does is the big question. I'm pretty sure there's no money back guaranty if they don't make you more...

there are services that rate fund managers - some have sterling records

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