Working my way up we have touched on my rules #10, #9, and #8, all of which are very basic "starter" rules for getting involved with your 401(k) or 403(b) plan at work. Today's rule assumes you are a plan participant and have been contributing for a while. At some point you start to think about what if any adjustments you should make to the investments in their plan. After all, you get your statement or go online, you see the performance of your funds and of all of the available choices and there is a temptation to move some money into the funds that have done best over the last quarter or year. We see funds flow into growth funds during strong bull markets and into cash in bear markets. It' human nature - you see a fund with a great quarter or even better, a great year or two. Maybe one (or more) of the funds you're in isn't doing so well. So you switch.

Eight times out of ten you will have been better off not making that switch. The hot fund has turned cold (in some cases stone cold). So should you never make a change? My rule #8, Better Than a Crystal Ball, suggests using just 4 funds in your plan. Once you have the 4, simply manage them by rebalancing once a year. Bring all of the percentages back in line, swapping a little out of the fund or funds that have done the best and into the laggards so that you are back to 25% each. But wait - no one wants to put money into the laggard. Everyone wants to put more in the best performer. By doing as I suggest you will be going against the flow, being counterintuitive, contrarian. You don't make money in the financial markets by following the herd. You make it by doing the opposite.

Tomorrow, Ground Rule #6: Borrow Sensibly, If You Must.



(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).