Is there something we should do to respond to todays market decline?
The answer depends on whether you are a buy-and-holder or market timer. Each buy-and-hold investor should have the appropriate amount of short-to-intermediate bonds to limit the risk of normal market declines.
What we know is the market periodically falls 20% to 50%. My personal portfolio is 50% equity funds and 50 bond funds, which means I am willing to accept losses of 10% to 25%. If you don’t know your personal loss limit, I hope you will reread “Fine Tuning Your Asset Allocation.” Also check out my article on bear markets.
Those using market timing should follow the dictates of their mechanical systems. For those market timers who are using the ICSIA (I can’t stand it anymore!) timing system, I have absolutely no idea what to recommend.
Remember, the future of all of our equity investments will not come from what we know today, but from what we don’t know about the future. Being willing to accept an investment in the unknown is part of the reason equity investors are supposed to get a higher return long term.
I’ll be recording a podcast for next week with more on the subject. Please stay tuned.
As always, to your success,