This morning I received an email informing me of upcoming changes to my 401(k) plan:

This message is intended to inform you of a change being made to [your] 401(k) Plan. ...

The Investment Review Committee recently evaluated the 401(k) Plan’s existing fund offerings and has decided to remove the [unnamed fund]. This fund has been under performing relative to its benchmark and similar funds for quite some time. ...

It's been a decent market this year. It'll likely continue into next year. Nevertheless the market has had its weak spots. If you're like most good investors, you're doing the end of year juggling act. You're working on rebalancing your portfolio; positioning yourself ahead of the trends for the new year; staying on top of gains and losses; and watching the tax consequences of everything you do.

It's not easy. Further complicating the matter is the Wash Sale Rule. The Wash Sale Rule was put into place to prevent investors from gaining a tax benefit by marking stocks to market.

Chalk this article up as just one person's opinion. I don't usually make predictions about coming events. Today's an exception. I think we're in for a real roller coaster ride this week in the stock market.

The Fed starts a two-day meeting on interest rates and the economy tomorrow. The meeting culminates in their policy statement Wednesday afternoon a little after 4pm eastern time. Many seem to think the Fed will drop interest rates another ¼ point, to 4.5 percent. I think the debate leading up to the actual announcement will shift market sentiment first one way and then the other.

It'll be an intense debate, too. Proponents of a cut say the problems in the housing market are leading us into recession. They point to falling home prices and the lack of credit as the principal reasons the Fed should loosen up and let more money flow into the economy. The rebuttal to that argument points to the most recent quarter's 3 point expansion in the US economy. Opponents of a rate cut argue that consumer spending and exports, which have recently been both high and on the increase, have been fueled by an already too cheap Dollar.

I spent a few minutes yesterday looking at how my various investments are doing relative to each other. Because I hadn't looked in on progress in a while I wanted to see whether any particular investment (or investments) had been doing better than others. If one or more individual securities do well - or one or more perform poorly - then it might be time to rebalance that portfolio.

It's a fairly easy process, especially if your broker provides a nice pie chart of your investments on your portfolio summary page like mine does. I just look to see if any of the pieces of pie are significantly larger or smaller than the average slice. If your broker doesn't show these pie charts, they're easy to construct with your favorite spreadsheet program. Just use your most recent brokerage statement and create a pie chart of your holdings.

For the most part my investments were not out of line this time around. The one exception was my 401(k), where all investment had performed equally well except one - the Emerging Markets fund. The slice representing Emerging Markets had grown to be about twice the size of all the others.

Well that felt (just about anything but) good, didn't it? A 311 point haircut. No question, a lot of people, myself included, are seeing a lot more red this morning than they're used to lately.

The bears are lapping it up. If you happened to be in one of the two major Exchange Traded Funds set up to cater specifically for the market bears yesterday, you did just fine. Both the Prudent Bear, BEARX, and the Grizzly Short, GRZZX, were up over 2% yesterday.

If you've been bearish recently, yesterday was a big payoff day for you. In fact, you've been feeling pretty good about your investment choices for a little while now. Looking at the chart below tells me your returns have been ahead of the S&P 500 returns for a few days now. In fact, if I had invested all my money in the Grizzly Short fund a month ago, I'd be ahead of where I am today by well about 10%.

What's your philosophy on the topic of portfolio rebalancing? Mine used to be one of mechanistic precision. Lately, rebalancing my portfolio is something I do less and less of. And I think as we become more successful, and by that I mean wealthier, we will all gravitate toward less frequent portfolio rebalancing.

The argument for rebalancing your portfolio on a periodic basis - quarterly is usually the recommended interval - remains sound. From time to time it makes sense to sell a few shares of your investments which have outperformed the others in your portfolio and use the proceeds to buy more shares of those investments which have lagged in your portfolio. That is, provided you're still convinced the laggards still warrant your investment.

Portfolio rebalancing is sort of a dollar cost averaging philosophy applied after the fact of investing. The effect is much the same as dollar cost averaging. You're buying less of - selling, actually - securities which are higher in proportion to your overall portfolio, and buying more of those which are lower in proportion to your overall portfolio.

It looks like we're in for another tepid day in stocks today. Have the summer doldrums set in? Should we take the rest of the summer off and relax? Where is the market headed now?

If I knew do you think I'd tell you? I don't, of course; but I have my ideas. If you'd care to hear them then read on.

The case for continuing momentum
Here we are 5 solid years into a bull market. We've had rapidly expanding corporate profits in the most recent three years and they're expected to remain strong well into next year. Yet Price-Earnings ratios aren't out of line. The P/E for the S&P 500 stands at 17, fully 3 points below the 25-year average of 20. I think most stocks are still relatively inexpensive.

Investment remains strong

Today I was privileged to get a sneak peak at a new financial portfolio web application I think you're going to like. It's called SteamStreet. The site is still in beta. The developers wanted a few investor types to have a look under the cover before the general public in order to get feedback on usability and function. How could I resist? I gladly accepted their offer to take the private SteamStreet Beta for a shake down cruise and write up a review of the site.

SteamStreet is a nicely done web application for evaluating, managing and tracking your financial portfolios. One really cool feature, which I'll tell you about in a little bit, is the portfolio sharing capability. But before you can share a portfolio you have to have a portfolio to share. So let's walk through some of the steps for creating a financial portfolio in SteamStreet.

I logged on using my super secret private SteamStreet Beta logon key and clicked the link to create a new portfolio in my account.

Yesterday I mentioned that it looks like volatility is ahead. You might think that volatility isn't so bad as long as prices are generally headed higher, right?

Well, sort of. If prices are headed generally higher then your portfolio's value is increasing. As they say, all boats rise with the tide. Even the bad news tends to be forgotten or overlooked when you're making money.

The unfortunate thing about market volatility is that it erodes returns. Let's look at a theoretical example of a stock that repeatedly rises 10% and then falls 10%.

As I write this the market is off to another bad start. It must be Monday.

Last week's big sell off has been unsettling. The reverberations continue. These aftershocks won't go away any time soon. We're entering a period of increased volatility; and that's going to have a tendency to raise stress levels. Are you prepared?

Where's your tolerance for risk these days? Chances are, and this is especially true if you had big money invested in March-2000, your appetite for risk isn't what it used to be. Your portfolio probably isn't what it used to be either.

You're probably more diversified. You've spread your investments among three or more asset classes to insure yourself against the markets' wild rides.

If so then pat yourself on the back because you're prepared for what's to come. Your plan now is to watch your expenses in order to save a little extra. You can then use this money to invest when things seem to be at their worst.