Rebalancing Act Is Not an Exercise in Timing.

As you do a year-end review of your mutual funds this winter, you might work up a surprising enthusiasm for the idea of rebalancing your holdings.

Rebalancing is a prosaic procedure, about as appealing as a cold bath during bull markets. In messier times like right now, though, its inherent logic is easier to appreciate.

You rebalance by going over your investments every so often and moving money out of positions that have increased the most, into those that have lagged behind. The purpose is to keep your asset allocation in the proportions you chose as best suited to what you're trying to accomplish. No new decisions; you just reaffirm your long-term plan.

In any season, there aren't many kicks to be had from selling funds that have served you best and buying stragglers. The whole concept goes against your every instinct.

The markets' behavior through the late 1990s made it seem downright foolish. The same big growth stocks kept prospering, rewarding anybody who resisted rebalancing.

The pattern eventually produced a backlash among professional investors who are supposed to be impervious to the siren songs of emotion. By doing the right thing all they got was unhappy clients.

Then the plot thickens, or sickens as the case may be, with the big belly flop of 2000. The Nasdaq Composite Index dominated by the glamour stocks of the 1990s, took a big drop. Those few investors who were still dutifully rebalancing out of tech stocks into bonds as 2000 began now feel much better.

That brings us to the present moment, and question on the, table: If I haven't been rebalancing up to this point, should I start now? Is the stock market going to struggle again in 2001?

Since nobody knows what stocks are going to do in 2001 or any other future period, trying to time the market is an impossible mission. Rebalancing should never be considered a market-timing strategy; on the contrary, it's intended to serve as an offset to the greed-fear cycle.