海角大神

Vitaly writes in:

Your suspicion is right. With all of this switching around, you鈥檙e probably not gaining much at all and you鈥檙e likely losing compared to just sticking with a small portfolio of investments.

Here鈥檚 what I would suggest doing. Go back and see how much you earned in returns in 2012. Ideally, your investment house will help you with this kind of calculation. Then, compare that percentage return to what you would have earned just sitting in some of the investment options.聽

What you鈥檒l probably find is that your annual return is pretty close to the returns on a lot of those investments. In fact, I鈥檇 bet that your returns are actually lower than most of them.

Why do I think that? The biggest reason is that when you jump from investment to investment chasing the latest bump, you鈥檙e likely 鈥渂uying high,鈥� which means that the investment isn鈥檛 going to see the same short-term returns that the investment saw over the earlier period. Also, there might be delays as well as fees in the transactions, which means that there are periods where your money鈥檚 not invested at all between the transactions and that some of the money might be swallowed up in the transaction. Many funds require you to hold your purchases for a short period or face fees.

My best advice to you is to聽stop looking at your retirement accounts.聽Delete the bookmark from your web browser and clear out your browser鈥檚 history. Limit yourself to one peek per quarter and only one change per year.

If you鈥檙e ever tempted to look,聽show yourself those numbers.聽They鈥檙e proof that obsessing over your retirement accounts is directly costing you money.

Before you do that, though,聽think about and settle on some sort of long-term portfolio.聽One good suggestion is聽this 鈥渂ucket鈥� portfolio聽that divides up one鈥檚 retirement savings into a variety of investments, each with a different risk level. This diversifies the retirement portfolio while spreading out the risk.

Once you鈥檝e figured out the exact portfolio you want 鈥� a set of investments that鈥檚 diversified, in other words 鈥�go into your retirement account and transfer all of your holdings to match that portfolio.

Let鈥檚 say you have $200,000 in retirement and you鈥檝e decided to put 15% in investment A, 20@ in investment B, 30% in investment C, and 35% in investment D. You鈥檇 fire up your retirement account, put $30,000 in investment A, $40,000 in investment B, $60,000 in investment C, and $70,000 in investment D.

After you do that,聽close your browser window and don鈥檛 look at it for a while.聽If you鈥檙e tempted, look at your 2012 returns and remember that聽tinkering costs you money, and looking makes it tempting to tinker.

Your contributions should be split up among the investments to match the various percentages you have.

Now, check it at the one year mark and聽rebalance it. Move the amounts around in such a way that the money is back at the percentages you want. That鈥檚 because some investments will gain more than others 鈥撀�but you can鈥檛 predict which ones will be the ones that gained the most.

That鈥檚 really all you need to do with your retirement accounts, and you鈥檒l likely experience more stable returns this way. Just do this, delete your bookmark and retirement history, and keep the evidence that your activity was costing you nearby. You鈥檒l be glad you did.