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2013: Strong Investment Year - now what?

by Tim Isbell

The stock market rose about 30% in 2013. The bond market lost about 1.5%, the result of interest rates ticking up mid-year. So investors with any sort of balanced asset allocation portfolio enjoyed a great year.

If you started out 2013 with your asset allocation tuned to fit your risk tolerance, it is out of balance now. Your percentage of stocks is sure to be above its target and your percentage of bonds below its target.

So now what? 

Now it's time to check your asset allocation against your targets. Most likely it's time to sell some stock shares that went up in order to buy some bond shares that went down. It's always hard to sell an asset that just did well in order to buy an asset that has lost money. But this is how smart investors operate. In the long run, it turns out this is how they buy low and sell high. If you need a reminder about how all this works, take a second look through the Personal Finance webpage. I revised it and updated the data to reflect 2013.  Also, I hope you'll take the time to read through the Asset Allocation Basics page again. It was a bit on the complex side so I spent some time simplifying it. If you need a place to get started, take a look at the $6,000 Portfolio. With this you can purchase 2 funds that will become your building blocks for the future. I'll admit that 2014 is not likely to be as great as 2013, but then we're not trying to time the market, we're trying to set target asset allocations that fit our risk tolerance - then steadily follow that path. Over time, it is the best plan available.

A few days ago the mailwoman brought me the January/February 2014 edition of CNN_Money magazine. It includes an Investments Guide section in which the first article is "Winning Made Simple." It is a great example of why I recommended this magazine in the Resources/Links web page. Please go to a magazine rack in a store, or to your local library and find this issue and read at least this one article. The advice will help you rebalance your portfolio in today's challenging market.

As long as I'm recommending good reading, here's a link from an article by Daniel Solin, another of my favorite personal finance writers: Reflections on 2013 and Beyond. It's right on target for where the investment world is right now.



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