The Bogleheads' Guide to the Three-Fund Portfolio

CHAPTER SIX Stay the Course

If you have followed the five steps in the previous chapter, you are well on your way to meeting your investment goals. You must stay the course you have chosen, but it won’t always be easy. You will be confronted with many temptations to make changes. Here are two that you must resist:

Bull Markets: When stocks are in a Bull Market, there will be a great temptation to increase your stock allocation. A small deviation from your asset allocation plan is permissible, but you should rebalance any time your stock allocation exceeds 10% (some would say 5%) of its desired allocation. If you are in the accumulation phase of investing, you can do this by putting all new contributions into your bond fund or by selling stocks. If you are in the withdrawal phase of investing, you should take withdrawals from your stock funds, or exchange stocks for additional bonds in your tax-advantaged account(s).

Bear Markets: When stocks are in a Bear Market (U.S., International, or both), you will be strongly tempted to sell at least a portion of your stock funds. DON’T DO IT. This is the time when stocks are on sale at lower prices. Sticking with your allocation means you likely will be buying low and selling high when you rebalance—the opposite direction of the herd. Rebalance by adding to your stock funds until you have again met your desired asset allocation. This is the most difficult (but most important) thing you can do in a Bear Market. Here is what Jack Bogle ...