April 2009 is the month I reached the ripe old age of 25 and a custodial brokerage account that my parents set up for me when I was a very young child transferred to my ownership. When they set it up they chose 25 rather than 18 or 21 as the age it would transfer to me because they weren’t sure how financially responsible I’d be – thanks to their good influence and my rational mind I turned out to be financially responsible by the age of 5. Hopefully this money will go towards a house in the next 5 years (depends how the market looks) so I’m not splurging with any of it and in the meantime I’ll be using it all to rebalance my portfolio.
Rebalancing is a tool that helps you buy low and sell high. After you’ve selected and achieved your asset allocation targets you should rebalance on a regular basis (but not too often – quarterly to yearly is ideal). The areas you are selling to maintain your targets are the areas that are up and the areas that you are buying to maintain your targets are the areas that are down. When you sell those areas that are up you’re selling high and when you buy those areas that are down you’re buying low.
Featured in the Carnival of Everything Money #13.
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