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How Cleaning Out the Fridge is Like Rebalancing Investments

How Cleaning Out the Fridge is Like Rebalancing Investments

As I was cleaning out our refrigerator this past weekend, it struck me that this task is a lot like rebalancing our investments.

In our fridge, we have the staples, the leftovers, things that have gone bad, too much of certain items and stuff that I have no idea why I purchased it.

Just like our investment portfolio.

Too Many Packs of Mozzarella Cheese

Our family loves cheese. Grilled cheese, ham and cheese, cheese toast, cheese quesadillas. Well, you get the idea. But why do we own 3 packs of the same type of Mozzarella cheese? Must have been on sale.

At the beginning of the year, we held 70 % in equities and 30 % in bonds, a stock to bond ratio with which we’re comfortable. But thanks to the high-flying equities market, we’re overweighted in stocks.

Much like we’re overweighted in mozzarella.

Now is the time to rebalance. We’re selling equities to bring our portfolio back to a 70/30 proportion of stocks to bonds.

As for the mozzarella cheese, we can’t sell it. But we certainly won’t be buying anymore until we get back down to a more reasonable ratio of cheese to ham.

Why did I buy this?

Ah, the gourmet green salsa.

Why did I buy this?

Oh yea, I remember. I was with some girlfriends at a foodie gathering in Toronto. I sampled the salsa on some nacho chips and thought (at the time) that it was fabulous.

I must have been drinking, because this stuff is bad. And you know a food is bad when 2 teenage boys won’t go near it.

This poor decision to buy the salsa is a lot like my decision to purchase shares of US Silica.

Back in May, I was in Toronto and heard some so-called financial expert talking about the stock. He made a strong case and at the end of his spiel, I was sold.

So, in June, I purchased 75 shares of US Silica, SLCA, for $3688. After watching the stock roller-coaster every day for 6 months, I was done. The price fluctuated wildly during the 6 months, from $25 to $36 per share. I finally sold all 75 shares in December for $3242. A loss of $446.

And just like the gourmet green salsa, I tossed it.

What do the green salsa and US Silica they have in common? They both left a very bad taste in my mouth. They both gave me buyer’s remorse. And they were both sold to me by so-called experts.

I should have known better.

And I should stop going to Toronto. I clearly make very bad decisions in that city.

The Leftovers – Rice and roast beef

The rice and roast beef tasted good the first night I cooked it. It tasted even better on the second night.

It was the meal that kept paying dividends. Just like our dividend stocks. They’re dependable, readily available and everybody likes them.

I’m planning on keeping them around for the long haul.

Things that have gone bad – 2 Expired jars of Salad Dressing

Way back in the deep dark corner of the fridge, I found 2 jars of salad dressing which had expired months ago.

My very first investment when I was fresh out of college was to start a traditional IRA. After lots of research, I settled on the Templeton World Fund. I chose this fund because it had exposure to worldwide equities and more importantly, it had a coveted 5-star rating from Morningstar.

And for the first few years, the fund was producing an average annual return of 16%.

But several years ago, things changed. The fund seemed to lose some of its flavor.

The fund routinely lagged its peers and the 5-star rating from Morningstar gradually dwindled to 2 stars. The returns of our other 2 IRAs (my roll-over IRA in Vanguard Wellington and my husband’s roll-over IRA in Vanguard Target Retirement 2030) were eclipsing the returns of the Templeton World Fund.

Much like the salad dressing, the Templeton World Fund had gone bad.

We’ve decided to exchange the shares of the Templeton World Fund for another fund, the Templeton Global Bond Fund. This fund routinely outperforms its peers and currently has a 4-star rating from Morningstar.

This move also helps reduce our exposure to equities and bring us back to the 70/30 stock to bond ratio in our overall portfolio.

Remember, it’s all about maintaining a well-proportioned amount of mozzarella cheese.

The Staples – Milk, eggs and butter

Milk, eggs and butter – the staples I use every day. I can count on them to provide nutrition and flavor to just about anything. And they are the best bargain in my fridge.

These staples are like our retirement accounts. We contribute to them every day (well, every pay period.) And with the employer match of 5% and their tax-advantaged status, they are the easiest way to build wealth.

Just like the milk, eggs and butter, I’ll keep them around. And keep adding to them.

A More Efficient Balance

Cleaning out the fridge helps me run a more efficient household, at least at mealtime. I don’t have to worry if something has gone bad or if I don’t have enough of some staple. I know there is always something in the fridge that is fresh and will taste good.

And just like cleaning out the fridge, rebalancing investments makes sure that our portfolio is running efficiently. We can count on the dividends to pay out regular installments. And I know we’ve got exposure to different types of asset classes to protect the overall portfolio in case of any downturn in the market.

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