The Bogleheads' Guide to Investing

by Mel Lindauer

If you have winners to sell in your taxable account, you might want to wait until after January 1 to sell in order to push the tax bill into the following year.

A simple solution may be to consider owning a fund of funds that meets your desired asset allocation requirements, such as one of the LifeStrategy or Target Retirement series from Vanguard that automatically handles the rebalancing chore for you.

We’d suggest that now’s the perfect time. Make a plan, pick a rebalance trigger, and stick with it; you’ll be better off for it.

Think about this way: If you were a business owner, would you hire someone who has an 80 percent chance of decreasing your profits? Well, that’s precisely what you are doing when you pay someone to actively manage your investments.

“Wall Street wants you to believe they are there to make money for you, but their true purpose is to make money from you.”

Create a simple, diversified asset allocation plan. Invest a part of each paycheck in low-cost, no-load index funds according to your plan. Check your investments periodically, rebalance when necessary, then stay the course.

You can simplify it even more by buying a single fund of funds that will take care of the allocating and rebalancing for you. Do this for a lengthy period of time and you will outperform about 80 percent of investment professionals.

We have more than 200 years of U.S. stock market history, and the only long-term trend was up. Here’s what recent history tells us: If you bought a market portfolio of stocks and reinvested the dividends, your odds of losing money in any one particular year were 32 percent. Your odds of losing money over any 5-year period dropped to 13 percent, and for any 10-year period the odds of losing money fell to only 2 percent. There has never been a 15-year period when stocks lost money. That’s all you need to know.