Re: Rebalance 401k Investments?

"Sandra Loosemore" <noreply@[EMAIL PROTECTED]
> wrote in message 
news:m3hcffbn1g.fsf@[EMAIL PROTECTED]
>> 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?

> It doesn't seem counter-intuitive to me.  Rebalancing means you take
> some profits from investments whose prices have run up the most, and
> use them to buy other things that are currently cheap.

Also, there are some asset categories, such as stocks and bonds, that have

intrinsically different performance characteristics--and also
intrinsically 
different volatility characteristics.  In other words: Stocks tend to earn

more than bonds over long periods, but bounce around more over short 
periods.

Now, suppose you look at your risk tolerance, and decide you want to keep 
40% of your money in bonds to reduce volatility.  If you go too long
without 
rebalancing, and stocks and bonds perform as they typically do, your 
****tfolio will eventually have much less than 40% in bonds.  Unless your 
risk tolerance has changed, you will want to increase your bond holdings
to 
get back to that 40% figure.

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