The implication is that, while the timing is admittedly extremely difficult to get correct, investors can benefit from pro-actively moving from excessively high returning investments to underperforming ones, and vice versa.

3. Related to 2., I believe it important to be willing to settle for sustained good returns when they become available.

This is another way of saying investors should try to avoid becoming greedy. Sure, possible returns of 10 to 15% or more a year would seem to be hard to pass up. But, usually, investors should be willing to do just that.

I define "good returns" as anything above average. And how would I define "average?" Average returns for stocks should be considered in the 10% range. Average for bonds would be highly dependent on whether interest rates have been trending up or down, since falling rates are good for bonds, and rising rates are bad; if rates are trending down, it might be 6% or so; if trending up, it might be as little as 3%.

Upon earning above average returns for a number of years running, it makes sense to capture some of those returns by seeking out either less currently above average performing categories of funds, or, less risk in cash. By "settling" for good returns, you are reducing your risk, essential for prudently managing your portfolio.

4. Look for performance trends as well as potential reversals.

Many people might think that investments are totally unpredictable from year to year. Therefore, they tend to accept staying put in most or all of their investments. However, such a belief seems to me to be clearly only a partial truth. Although true that sometimes almost anything can happen comparing one year to the next, when one looks at multi-year periods, it is most often the case that a given investment class keeps on performing in the same way, either above average, below average, or close to average ("average" defined as above).

But friendly long-lived trends can, and often do, become the investor's enemy. Can anyone know when this will happen? Although literally thousands of articles are written on this subject every year, accurately forecasting when a severe change of direction is close at hand is next to impossible. However, by prudently taking some of one's profits (see 3.), one can guarantee coming out ahead for a portion of one's investments no matter what happens next.

By following performance trends, you can see when a given category of investments has started to reverse its prior performance, although you can never be sure this change of direction will last significantly long enough to justify making a portfolio change. Some good rules of thumb might be a drop of 5 to 10%, or better yet, an extended period of subpar performance lasting at least 6 months, but more reliably, lasting for 12 months or more.

5. Unfortunately, there are very few economic indicators, if any, that are consistently useful in helping you decide when to alter your investments.

Although typically used as the basis for making portfolio decisions, in reality, many closely watched measures of the economy are difficult to predict, or even to interpret as to their ramifications, and turn out to be not as closely related to investment performance as one might expect. Further, many of these releases are reported "too late." This means that once they are reported and confirmed by subsequent reports, your investments may have already moved considerably, down or up, preventing you from getting much benefit if you haven't already adjusted your portfolio ahead of the data.

One exception might be the evolving direction of interest rates. As suggested above, as rates trend up, more and more, you should be willing to let go of some of your bond funds, even if it means exchanging into cash and getting very little or no return as a result.

Rising interest rates do not appear to have as immediate an effect on overall stock market performance as they do with bonds, especially when rates are starting from a low base, such as would be the case now. Eventually, however, rising rates will cause most stock funds to suffer.

But it is also important to be aware of the particular kinds of bond and stock funds that will be hurt less by rising rates. For bond funds, corporate bond funds should stand up better than government bond funds, and short-term funds better than long-term ones. For stock funds, there is no hard and fast rule, but eventually, you want to be light on particularly aggressive funds, the ones that have gone up the most prior to this point.

6. There are very few actual occasions which offer above average, or even exceptional, opportunities for investors, so when these do occur, one who acts may be able to achieve exceptional results.

Consistent, regularly occurring investing, such as through scheduled payroll deductions to a retirement account, is as good a way to add to your investments as any. However, perhaps once every 5 to 10 years, stocks (or bonds) go completely out of favor due to severe underperformance, or even gut wrenching bear markets. Investors should recognize that these times are indeed likely the best times to add extra amounts to affected investments, but only in moderation with a long-term perspective.