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Mark Hulbert: Everyone’s A ‘Buy and Hold’ Investor Now. But Can You Stay That Way?
Most investors want know if their asset allocation is correctly set to their risk tolerance until we get into a severe market downdraft. If one waits too long in the downdraft to start to trim their positions, raising cash, then they might indeed be better off to just ride out the storm. However, I have certain positions I plan to trim and others I plan to raise (including cash) in a stock market decline. The consept is to move money that is invested in the area of greater risk on the right side of the portfolio left towards areas of investment with less risk.
That is why my asset allocation has investment ranges for my portfolio's areas of investment. For the cash area my ranges are from 15% to 25%, for my income area the ranges are from 25% to 35%, for my growth & income area the ranges are form 30% to 40% and for the growth area the ranges are from 10% to 20%. In extreme market declines cash can be temporarily held above the 25% mark while most of the trimming would come from the growth area of the portfolio since it consist mostly of all equity capital appreciation type funds where the greatest risk is found. I use my market barometer as a tool to help me throttle my asset allocation and rebalance it from time-to-time based upon my market read. Currently, if I were to completely sell out the growth area that would raise my cash allocation to about 35% if all were moved to cash. In the rebound, I'd load the growth area while reducing cash. Most likely, I'd stand pat in the income and growth & income areas of the portfolio.
In my book ... Buy & Hold does not mean hold forever. Even Mr. Buffett makes holdings adjustments within his massive portfolio form time-to-time based upon his firm's market read.
I have already developed my market downdraft management plan just in case the market storm arrives. Usually, these market storms come quickly and are unexpected.
Comments
That is why my asset allocation has investment ranges for my portfolio's areas of investment. For the cash area my ranges are from 15% to 25%, for my income area the ranges are from 25% to 35%, for my growth & income area the ranges are form 30% to 40% and for the growth area the ranges are from 10% to 20%. In extreme market declines cash can be temporarily held above the 25% mark while most of the trimming would come from the growth area of the portfolio since it consist mostly of all equity capital appreciation type funds where the greatest risk is found. I use my market barometer as a tool to help me throttle my asset allocation and rebalance it from time-to-time based upon my market read. Currently, if I were to completely sell out the growth area that would raise my cash allocation to about 35% if all were moved to cash. In the rebound, I'd load the growth area while reducing cash. Most likely, I'd stand pat in the income and growth & income areas of the portfolio.
In my book ... Buy & Hold does not mean hold forever. Even Mr. Buffett makes holdings adjustments within his massive portfolio form time-to-time based upon his firm's market read.
I have already developed my market downdraft management plan just in case the market storm arrives. Usually, these market storms come quickly and are unexpected.
Are you prepared?
Old_Skeet