Q: Can we set it and forget it?

A: No. An unattended portfolio can get far out of balance.

A common misconception about passive investing is that once a portfolio is assembled, it can be left untouched indefinitely. This set it and forget it approach can result in a portfolio that looks and performs very unlike the original.

In the example here, a 50-50 allocation of stocks and bonds at the end of 1988 morphed into a 67-33 allocation by 1998. The faster growth of stock prices versus bonds over that period caused this unattended portfolio to reach a composition that may be inappropriate for the age, goals, income needs, and risk tolerance of the investor who approved the original 50-50 allocation.

As asset allocation can strongly influence the risk and return characteristics of a portfolio, rebalancing is a key element of index investing, not just between stocks and bonds, but between domestic and international securities, large and small caps, etc. This is especially important in volatile markets — as we have experienced recently — where big swings in returns can dramatically transform the character of a portfolio in just weeks or months.

Next time: Will the market go up or down tomorrow?

Contact: John Osbon 617.217.2772 josbon@osboncapital.com

Osbon Capital Management, LLC ("Osbon") is an SEC registered investment adviser with its principal place of business in the Commonwealth of Massachusetts. Osbon and its representatives are in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which Osbon maintains clients.

The stock portfolio is 50% small stocks and 50% large stocks. Small stocks are represented by the performance of the Dimensional Fund Advisors, Inc. (DFA) U.S. Micro Cap Portfolio. Large stocks are represented by the Standard & Poor's 500®, which is an unmanaged group of securities. Bonds are represented by the five-year U.S. government bond. An investment cannot be made directly in an index. The data assumes reinvestment of all income and does not account for taxes or transaction costs.

Any historical returns are not net of advisory and/or other fees and expenses. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this Q&A will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

For additional information about Osbon, including fees and services, send for our disclosure statement as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money. For information pertaining to the registration status of Osbon, please contact Osbon or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).