Denton County Living Well Magazine Winter 2015 | Page 49
Wait and See Willie didn’t know what to do, so he didn’t do anything at all, except worry.
Disciplined Diane stuck with the original plan and rebalanced at the
beginning of 2009, as if oblivious to the stock market storm raging
around her. She took about $10,000 out of her Bond fund and put it
into the stock index fund, bringing her portfolio back to her original
target allocation of 60 percent stocks and 40 percent bonds.
Diane had no better idea than anyone else what would happen
to the stock market in the year ahead. She had, however, seen
enough recessions to know that the stock market and economy
eventually right themselves. That wasn’t her main reason for hanging tough, though. Diane told me she was tired of following get-in
get-out advice and wanted a plan that was more stable and long
term. Modern portfolio theory was that plan.
Earlier this year, I asked my friends how their $100,000 accounts
had done during 2009. Here is a summary of their results, at right.
Disciplined Diane was far ahead of Panicky Pete and Nervous
Nelly, who’d sold into the downturn. She was also ahead of Wait
and See Willie by about 2.6 percentage points. This excess return
was earned because Diane rebalanced last year while Wait and
See Willie didn’t.
Diane’s results provide a nice example of why a buy, hold, and
rebalance strategy is more beneficial to long-term investors than a
buy, hold, and do nothing strategy – and far more beneficial than
a market timing strategy.
2009 Year-End Total Return
Value
2008-2009
Panicky Pete.........................$83,526 -16.5%
Nervous Nelly.......................$90,320 -9.7%
Wait and See Willie...............$93,053 -6.9%
Disciplined Diane.................$95,706 -4.3%
Source: Forbes.com, March 8, 2010.
DENTON COUNTY Living Well Magazine | WINTER 2015
47