In my last blog post, I mentioned that I had recently set up a passive portfolio comprising 70% stocks and 30% bonds. You might wonder whether it is the worst time to invest, considering that the Dow Jones Industrial Average (DJIA) is near an all-time high while the Federal Reserves is planning to raise interest rates from an all-time low. Any fall in the DJIA will lead to losses on the stock component of the portfolio while any rise in interest rates will lead to losses on the bond component. While I do not welcome a crash in stock and/or bond prices, I am nevertheless comforted by the fact that there is a defence mechanism inherent in the portfolio, namely, portfolio rebalancing. When stock and/or bond prices undergo large changes, portfolio rebalancing will take advantage of such volatility and eventually lead to higher portfolio value. See the post on  (Read more...)