Time To Tune Up & Simplify?

First up a quick read with some thoughts from Vanguard Founder Jack Bogle. If you don't know Bogle he is considered to be the founding father of index funds, he is a big believer that most people cannot pick stocks well, that guessing what the markets will do is just about impossible and the best choice for most people is to use index funds. Despite how difficult he would say it is to have a sense of what markets will do, his track record for being right is very strong and right now he is urging caution. In the article he talks about ratcheting down equity exposure to 60% if you're normally at 70%.

The reality is the most investors, including advisors cannot see trouble when it is coming. I always frame this along the lines of looking for indicators that have warned of elevated risks in past cycles and heeding those indicators, I have been blogging about this incessantly for months but somehow people don't believe it. I am not sure if there is a this time is different mentality or something else but it seems like not a lot of folks are interested in portfolio defense until after the market drops.

Of course one way to address this is to rebalance your portfolio based on some sort of percentage shift or based on the calendar. Both have their pluses and minuses but are valid. I have another idea that could help avoid the sense of regret that goes with learning you have too much in equities after a large drop. It is human nature that sometimes when you look at your 401k balance (or whatever vehicle you're using) you think to yourself "whoa, that's pretty good." Those times when you have that sense of pride or accomplishment is actually a pretty good time to lighten up a little. Not sell out completely but along the lines of what Bogle says, reducing from 70% to 60% or something like that. This idea is purely behavioral. To the extent investing frequently is emotionally difficult, selling at times when it is not difficult likely means we're a lot closer to a top than a bottom. As far as how to buy back in,

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