Rebalance to Reduce Risk
It's understandable if you're feeling off balance about your investments these days. After all, stock funds whose growth seemed unstoppable for nearly two decades stumbled and fell for more than three years. Since the first quarter of 2003, noteworthy growth seems to have resumed.
Yet after several uncertain years, you may be tempted to make a change in your holdings. Emotional reactions to investing setbacks can compound the problem.
There is a reasoned approach to making investment changes. Known as “rebalancing,” it's the cornerstone of a disciplined investment strategy. Rebalancing simply means bringing your mix of investments back to the same proportions you intended when you began investing. To do this, you may need to sell shares from the best-performing asset class and put them into the worst performing asset class. It's the opposite of chasing returns and is often tough to do.
When you began investing in The Consolidated Edison Thrift Savings Plan, you probably decided on your chosen asset-allocation mix based on the time you had to invest and your tolerance for losses. While your original reasons for asset allocation may not have changed, your actual asset allocation may have drifted off course in response to market changes. As the stock market rose and fell then rose again over the last few years, for example, the percentages of your portfolio devoted to each of the asset classes – short-term reserves, bonds, and stocks – probably changed dramatically.
It is sometimes hard to remember that the primary purpose of rebalancing is to manage risk, not to maximize returns. In the long run, rebalancing may also improve returns because it puts the very best investment advice into action – buy low and sell high.
To keep your plan on track, set a schedule. Pick a date – perhaps a birthday or an anniversary – to review your investment plan each year. If you need to make a change, you can rebalance in two ways:
Remember, successful investing usually means doing just a few things right – and avoiding some common mistakes:
Go to Vanguard.com® and complete Vanguard's Investor Questionnaire. The questionnaire helps you assess how well you'll be able to withstand the inevitable market swings. Complete one for each of your long-term goals, those you plan to finance in more than five years. Based on your responses, the questionnaire will suggest an asset mix – one of nine model portfolios. Just go to www.vanguard.com.
Please call a Vanguard® Participant Services associate at 1-800-523-1188. Associates are available Monday through Friday from 8:30 a.m. to 9 p.m., Eastern time.
We hope you'll make the most of The Consolidated Edison Thrift Savings Plan to save for retirement.
For more information about any fund, including investment objectives, risks, charges, and expenses, call The Vanguard Group at 1-800-523-1188 to obtain a prospectus. The prospectus contains this and other important information about the fund. Consider and read the prospectus information carefully before you invest. You can also download Vanguard fund prospectuses at www.vanguard.com.
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