Just understand that if you are committed to a diversification / rebalancing strategy, you have to content yourself with not being able to reach a rich(er) quick(er) Number:

http://7million7years.com/2008/09/30/its-the-gradient-of-the-curve/

I don’t expect the market to behave consistently over any significant period of time. The reason I chose an example with no gains was to show that rebalancing can make a profit from volatility even when there is no underlying price appreciation. I suspect that is the mathematical explanation behind the study SiliconPrairie referenced. If a market was continually increasing then 100% stocks should do better- not that that is very realistic either!

I can believe some rebalancing could do better- especially with all of the market volatility we’ve had this year. I really wish I could time the market. I console myself with the fact that no one can really time the market with long term success.

I can rebalance though- as it can be done with a calculator rather than a crystal ball!

-Rick Francis

Paul Grangaard used Ibbotson data [ http://corporate.morningstar.com/ib/asp/subject.aspx?xmlfile=1383.xml&ad=07Cat ] going back 100 years to show that stocks alone (as measured by the Dow Jones) grew at a min. 8% for ANY 30 year period. I’m not sure that they showed an improvement by adding bonds … I’ll try and get hold of the book you mention to check their source data.

If you go for a much higher bond allocation (like 30 or 50%) then you’ll see smaller changes in your portfolio but probably have slower returns over time. If you only get 80% of your number that isn’t the end of everything – chances are you’ll find a way to survive. If you’re 20+ years away from using your portfolio for income the only way this helps is to prevent you from panicking and making a mistake, but over shorter timeframes it may be worth lowering your target a bit to get a better idea of where you’ll end up.

Of course for readers who are taking the name of the site literally none of this matters.