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Comment by liquidpele | Hacker News Reader

Rebalancing according to risk is recommended, not doing it because you think you know what the market is going to do. For instance, let's say right now, the market is headed up. When is the right time to "re-balance" to more cash? This is just assuming that the market is going to go lower than it currently is, which is just as much a gamble as thinking it'll go up for the next year.

In short, don't try to guess the market and keep some magical percent of cash/investments unless you have the means to gamble that money. Talk to a financial advisor and choose a risk-based investment strategy that makes sense for your point in life.

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It's simple and doesn't involve guessing what the market will do. Just as Browne recommended, you pick a percentage to hold for each asset, and rebalance on a fixed schedule that's long enough to avoid short-term tax rates. If percentages aren't off by much, don't bother.

It's not gambling, and it's not original with Browne. The percentages aren't magic, they're just anything that has worked reasonably well historically over many different economic conditions. Most fee-based financial advisors will give you a strategy like this. It's probably the most widely-accepted strategy in finance.

> When is the right time to "re-balance" to more cash?

When you look at your balance at the end of the year and your cash proportion happens to be below 20% instead of 25%.

Rebalancing is pretty much standard practice nowadays, nothing magical there. Any financial advisor will tell you to rebalance your portfolio from time to time.

> For instance, let's say right now, the market is headed up. When is the right time to "re-balance" to more cash? This is just assuming that the market is going to go lower than it currently is, which is just as much a gamble as thinking it'll go up for the next year.

It's the other way round, if the market has gone up then you rebalance to hold more cash. You're betting on mean reversion, not just making a random directional bet; in the long term that works, and since you're not leveraging there's no "remain irrational longer than you remain solvent" problem.

> When is the right time to "re-balance" to more cash?

In theory if you wanted to invest "perfectly" you'd do it continuously. In practice trading costs, tax concerns, and the cost of your own time mean you want to set a schedule that's not too inconvenient.

> Talk to a financial advisor and choose a risk-based investment strategy that makes sense for your point in life.

I know this is the standard advice, but these days it's pretty outdated IMO. A financial advisor will rarely tell you anything more than the basic middle-of-the-road advice you find on the internet or elsewhere, and they'll charge you a substantial amount for the privilege.

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