Make New Savings Very Aggressive, and Existing Assets Well Diversified
The first secret to be shared here is that your investment portfolio’s asset allocation is always recommended by these programs and advisors to be the same for new contributions to savings as for existing lumps you have at risk. I strongly recommend that new qualified plan and other new savings contributions be invested much more aggressively than existing lumps. This is because new contributions are periodic and (compared to your existing savings) small. There is relatively little each month or payday at risk and not for very long. Hence, you should be very aggressive with new savings dollars, but use the model’s recommended and more diversified asset allocation for existing account balances. Every quarter, treat the “new contributions” as if they are old. Rebalance existing (only) funds to the asset allocation that the model recommended (it gets out of balance anyway because some funds grow or lose at different rates, requiring your existing asset allocation to be rebalanced back to whatever the model recommended for you). This technique allows you to buy new shares of aggressive funds at the lowest average cost; you get more shares when the price is low, fewer of the expensive shares. But your existing larger balance—what you must protect and grow with care—is somewhat protected by being allocated per the software’s recommended efficient allocation….