Portfolio Reviews Can Often Lead to Doing Nothing

An oft-overlooked part of successful investing is knowing when not to act.

Very often, especially when a long-term approach to investing is followed, no investments will meet a sell rule. Similarly, allocations will frequently remain within an allowable range of fluctuation. In such situations, doing nothing is the smartest thing you can do. 

This was the case when I looked at my 403(b) account over the weekend. As long-term readers of this weekly newsletter know, I check my workplace retirement plan account twice a year to see if the allocations are within an acceptable range. As of the end of the last week, the five funds held in the account were fairly close to my desired allocation.

Each of the five funds represents a different asset class or asset class category. They and their allocations are:

• Vanguard S&P 500 Index Admiral (VFIAX)—20.8%;
• Vanguard FTSE All-World ex-US Small-Cap Index Admiral (VFSAX)—19.4%;
• Vanguard Intermediate-Term Investment-Grade Admiral (VFIDX)—18.8%;
• Vanguard Real Estate Index Admiral (VGSLX)—21.4%; and
• Vanguard Small-Cap Value Index Admiral (VSIAX)—19.6%.

The reason the allocation for each fund is close to my 20% per fund target is that I rebalanced the account in April. At the time, my bond allocation had fallen to approximately 14% while the small-cap value allocation was close to 25%. My portfolio strategy calls for rebalancing the account whenever the portfolio weight of any of the five funds falls below 15% or rises above 25%. If the portfolio weight for each of the five funds is within the range of fluctuation I allow, I do nothing.

The weighting of the bond fund has declined since rebalancing. This is because its share price was about even at the end of October relative to where it was at the end of April. Meanwhile, the other four funds all gained in value.

I’m fine with that. Each fund was chosen based on the asset classes they target, the long-term average returns for each asset class, how each works together from a diversification standpoint, my financial and psychological tolerance for risk (which may be different than yours) and a desire to keep the portfolio relatively simple.

Since my goal of funding retirement is long-term, so is my strategy and my approach to managing the portfolio. Long-term strategies, by definition, call for looking past the short-term headlines and temptations to act. Action is only taken when the process calls for it. Otherwise, not acting is the best thing an investor can do.