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the reason many folks are not breaking new highs with their investments is many either werent diversified across different asset classes or they didnt do the right thing and re-balance when things were dropping.
they panicked and didnt take advantage of the drop.
except for 2 large cap indexes the dow and the s&p 500 which are lagging behind, most other more broadly based indexes broke new highs a while ago.
the widest the wilshire 5000 which includes all traded stocks on the major exchanges broke new highs months ago.
money labs did a study on rebalancing. heres what they found.
if you were invested from 2003 to 2007 a 60/40 mix of stocks and bonds grew out of whack as markets rose to 70/30.
if you didnt rebalance then you fell 56% from 70% stock instead of rebalancing and falling 56% on 60% stock and the money you shifted to bonds would have risen too off setting even more of that drop.
not rebalancing made the drop less severe and the recovery much faster.
next they looked at those in the markets at the start of 2007 and stayed put until now but didnt rebalance were up 8.00%
those that rebalanced were up 9.4%
those that got scared after only a 20% drop and fled to bonds are up 5.17% today.
bailing and giving up on their strategy cost them almost 100% more in gains.
sooooo once again another study shows sticking to your strategy and turning off the noise works.
Last edited by mathjak107; 05-28-2011 at 07:11 AM..
Be interesting to see how one fared with a regularly balanced portfolio from 2001-2011. I hear the term "lost decade" thrown about but it usually rides on someone who was 100% stocks.
2000 to 2011 the markets averaged over 9% cagr . can you believe what a difference your start and ending points make?
there is no lost decade shifting the years around to currently ending.
the last 10 years ,20 years and 30 years all come out to the 9% range. in fact the worst combination in a 20 year period still produced 7% annual returns.
Last edited by mathjak107; 05-28-2011 at 07:34 AM..
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