Re: Rebalance 401k Investments?

Tony Sivori wrote:

> The administrators of my 401k plan recommend frequent rebalancing
> (equalizing all balances) of my chosen investments.
> 
> This seems counter intuitive to me. Isn't it just throwing good money
> after bad, to transfer money from successful stock to a losing one?

What is frequent? I know the word, I am asking how frequent they 
suggest. Rebalancing can be done many ways, one way is that you 
reallocate every year+1 day so gains are taxed as long term (in taxable 
accounts, of course). Another is to rebalance if your allocation is +/- 
5% out of range, e.g. you want 40% US stock, 40% foreign, 20% 
bonds/cash. If US % should go over 45% or under 35%, it's time to 
adjust. In the case of the 401(k), if there is no cost to rebalancing, I 
suppose you can do this quarterly or even monthly.

The concept is more applicable to sectors than individual stocks, but 
consider, in the tech bubble many people rode the shares to the top and 
then down to the bottom. Those who were diversified certainly didn't 
lose the 80%+ that individual stock holders lost on some of those shares.
JOE

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