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December 27, 2011

The lessons of 2011 are not new!

Articles about what we learned in 2011 seem to be restating what experience and wisdom have taught us over time.  
Everyone should have a financial plan that includes an investment plan.  Rather than reacting to fluctuations, investors should stick with their plan.  Try to tune out the noise.  These short term events go in both direction.  Trying to react to each event puts you in a position of market timing.  That type of short-term approach has been a losing approach.  
At least annually comparing your portfolio to a benchmark that reflects your target portfolio.  Look at the long term-trend not the current noise.  Your target portfolio should reflects your situation including: you time horizon, your, risk tolerance and your financial goals.  Life events and other circumstances should be considered in determining if the target portfolio needs to be updated.  Make the appropriate adjustment to bring your portfolio in line with your target portfolio.   Strategic adjustment would be made at this time.  This re balancing has been shown to improve investment performance over time.   If done too frequently it becomes market timing.  
Diversification is still very important.  In the short-term it may seem that it is not important.  In the long-run it is effective.  Even when investments are moving in the same direction, the movement is not the same and the recovery is not the same.  If the fluctuation of your portfolio is causing sleepless night, you should review your portfolio.  A re-evaluation of your financial goals and other factors should be made at the same time. 
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