Steve Hanke's Investment Advice: Rebalance Your Portfolio & Think Carefully About Selling #investing

Key Concepts

• Portfolio Rebalancing
• 60/40 Portfolio
• Equity Weighting
• Market Timing (Getting Out and Back In)

Portfolio Rebalancing

The transcript emphasizes the importance of rebalancing a portfolio, particularly in light of market shifts. Using the example of January 2020, a typical "plain vanilla" 60/40 portfolio (60% stocks, 40% bonds) would have significantly shifted by now. Due to market performance, this portfolio is likely no longer 60/40 but has become heavily weighted towards equities, potentially reaching "85 or something like that." This means the investor's current asset allocation is likely misaligned with their original comfort level and risk tolerance. Rebalancing is presented as the sound advice to bring the portfolio back to its intended allocation, regardless of the investor's starting point or comfort level from a previous time.

The Pitfalls of Market Timing

A common concern raised is the idea of exiting the stock market due to worries about various economic factors. However, the transcript strongly advises against this. The core argument is that market timing, which involves deciding when to get out of the market and then subsequently deciding when to get back in, is historically a "disaster." The difficulty lies in making two correct decisions: the exit point and the re-entry point. The transcript implies that consistently timing these moves successfully is extremely challenging and often leads to negative outcomes for investors.