It’s February 2020 and the market has been supposedly responding to news about the coronavirus. Stocks are down, bonds are up. But, the sun is still out, I’m still retired, and my morning cup of coffee is still delicious.
I feel so deliciously human for sharing my morning cup of coffee with the rest of the world. When I’m drinking it, I know that millions of other people are enjoying the same cup. It’s as if we are all sitting together, savoring that moment together.
Today, I also share with the rest of the world a similar anxiety regarding my investments. I feel for those who fear it and I feel for those who don’t know what to do.
The difference is that I do know what to do. I wrote my investment manifesto years ago. In it, I outlined that when my bonds go up in value and my stocks drop, I must sell some of the appreciated bonds and buy more stocks.
Asset Allocation Rebalancing
That’s exactly what has happened over the past few days. My stocks have crashed and my bonds are going up.
So, I logged into my Vanguard account, my Charles Schwab account, and my Fidelity brokerage and executed the following orders.
Purpose of Rebalancing
The purpose of doing this is to most importantly maintain my asset allocation of somewhere around 90% stocks to 10% bonds.
The reason this concept of asset allocation and rebalancing of a portfolio works is because it supposedly helps you sell lock in some of your gains and buy more of funds which are undervalued.
If I only was invested in stocks – as in, a 100% stock index fund portfolio – I wouldn’t have any wiggle room for rebalancing.