https://www.sec.gov/Archives/edgar/data/1355064/000158064219004353/acsmallcap497s.htm
497 1 acsmallcap497s.htm 497
image001
MUTUAL FUND SERIES TRUST
AlphaCentric Small Cap Opportunities Fund
Class A: SMZAX Class C: SMZCX Class I: SMZIX
(the “Fund”)
Supplement dated September 13, 2019
to the Prospectus, Summary Prospectus and Statement of Additional Information, each dated August 1, 2019
______________________________________________________________________________
The Board of Trustees of Mutual Fund Series Trust has concluded that it is in the best interests of the Fund and its shareholders that the Fund cease operations. The Board has determined to close the Fund and redeem all outstanding shares on September 27, 2019 (“Liquidation Date”).
Effective immediately, the Fund will not accept any new investments and may no longer pursue its stated investment objective. The Fund will begin liquidating its portfolio and will invest in cash equivalents until all shares have been redeemed. Any capital gains will be distributed as soon as practicable to shareholders and reinvested in additional shares, unless you have previously requested payment in cash. Shares of the Fund are otherwise not available for purchase.
Current shareholders of the Fund may, consistent with the requirements set forth in the “Exchange Privilege” section of the Prospectus, exchange their shares into shares of the same class of other funds in the AlphaCentric Family of Funds at any time prior to the Liquidation Date.
ANY SHAREHOLDERS WHO HAVE NOT REDEEMED OR EXCHANGED THEIR SHARES OF THE FUND PRIOR TO SEPTEMBER 27, 2019 WILL HAVE THEIR SHARES AUTOMATICALLY REDEEMED AS OF THAT DATE, AND PROCEEDS WILL BE SENT TO THE ADDRESS OR ACCOUNT OF RECORD. If you have questions or need assistance, please contact the Fund at 1-844-223-8637.
IMPORTANT INFORMATION FOR RETIREMENT PLAN INVESTORS
If you are a retirement plan investor, you should consult your tax advisor regarding the consequences of a redemption of Fund shares. If you receive a distribution from an Individual Retirement Account or a Simplified Employee Pension (SEP) IRA, you must roll the proceeds into another Individual Retirement Account within sixty (60) days of the date of the distribution in order to avoid having to include the distribution in your taxable income for the year. If you receive a distribution from a 403(b)(7) Custodian Account (Tax-Sheltered account) or a Keogh Account, you must roll the distribution into a similar type of retirement plan within sixty (60) days in order to avoid disqualification of your plan and the severe tax consequences that it can bring. If you are the trustee of a Qualified Retirement Plan, you may reinvest the money in any way permitted by the plan and trust agreement.
This Supplement and the existing Summary Prospectus, Prospectus and the Statement of Additional Information, each dated August 1, 2019, provide relevant information for all shareholders and should be retained for future reference. The Summary Prospectus, Prospectus and the Statement of Additional Information each dated August 1, 2019 have been filed with the Securities and Exchange Commission, are incorporated by reference, and can be obtained without charge by calling the Fund toll-free at 1-844-223-8637 or by writing to 17645 Wright Street, Suite 200, Omaha, Nebraska 68130.
Please retain this Supplement for future reference.

@Junkster
R
I'm not sure where they're still finding non-agency debt trading at 70 cents on the dollar of par value today. One of their major competitors, Angel Oak, at the end of 2018 said they were buying at 86 cents on the dollar: https://angeloakcapital.com/wp-content/uploads/2018/4Q/Seeking_to_Improve_Quality_While_Maintaining_Income_Whitepaper-web.pdf
Here's what Angel Oak says:

For example, the prime, Alt-A, and option ARM legacy NA RMBS we target at the top of the capital structure are still at deep discounts relative to par at approximately 86 cents on the dollar.

So if it's 70 cents, I assume it is probably lower credit quality, which could be fine so long as one is willing to accept the additional default risk. I see the distinction in your post is sub-prime so that must be it.
Update: OK, I see here for AlphaCentric's own data, the portfolio is at 75 cents on the dollar and the entire market they say is 81 cents on the dollar: alphacentricfunds.com/funds/IncomeOpp/presentation.pdf
Yet it is interesting--one word for it, scary is another--how far down the capital structure with regard to collateral and credit quality you have to go to get to such discounts now. See page 19 to look at their example of the debt tranches. I'm not saying this strategy won't work, but clearly there are risks here.

These subprime borrowers have now been in their homes 12 to 16 years and have built up equity instead of being upside down when the housing market cratered in 07/08. Dan Ivascyn mentioned in his recent interview how unlikely these borrowers would be to default now even if they their economic situation worsens. There may be another economic crisis but next time it may finally be the much ballyhooed corporate credit crisis. From my experience investors always want to relive the previous crisis not realizing they never immediately repeat. A classic example is the inflation crisis of the 70s. How many times have we heard since then another inflation crisis is just around the corner.

@Junkster
I'm not sure where they're still finding non-agency debt trading at 70 cents on the dollar of par value today. One of their major competitors, Angel Oak, at the end of 2018 said they were buying at 86 cents on the dollar: https://angeloakcapital.com/wp-content/uploads/2018/4Q/Seeking_to_Improve_Quality_While_Maintaining_Income_Whitepaper-web.pdf
Here's what Angel Oak says:

For example, the prime, Alt-A, and option ARM legacy NA RMBS we target at the top of the capital structure are still at deep discounts relative to par at approximately 86 cents on the dollar.

So if it's 70 cents, I assume it is probably lower credit quality, which could be fine so long as one is willing to accept the additional default risk. I see the distinction in your post is sub-prime so that must be it.
Update: OK, I see here for AlphaCentric's own data, the portfolio is at 75 cents on the dollar and the entire market they say is 81 cents on the dollar: alphacentricfunds.com/funds/IncomeOpp/presentation.pdf
Yet it is interesting--one word for it, scary is another--how far down the capital structure with regard to collateral and credit quality you have to go to get to such discounts now. See page 19 to look at their example of the debt tranches. I'm not saying this strategy won't work, but clearly there are risks here.

I'm thinking that Pimco Income Fund is held by a good number of MFO members. I own the A share version (PONAX) thus I have no wrap fee assessed on my account by my brokerage house. Also, I can do net asset value transfers into other Pimco A share funds (commission free) should I choose to do this.
I enjoyed listening to what Mr. Ivascyn had to say about Pimco Income's portfolio construction and that it was geared for income generation over capital appreciation although capital appreciation was a secondary objective of the fund.
I plan to buy more of this fund, on nav weakness, as I continue to expand the income area of my portfolio.

@johnN
You asked: "If you buy bonds what would you buy??"
First note: We're full up here with our current allotment of investment grade bonds. With this in mind; and IF the equity markets begin a serious down trend, we would monitor the affect on U.S. government issues. Enough risk off money could still further buy these type of issues and provide decent capital appreciation via price performance.
Second note: Our path with bonds and any other holdings will not match anyone else's investment path. Too many variables; as with your and your Mom's accounts. Without full knowledge of monetary positions and taxable statuses, tis impossible, even for an adviser, to imply suggestions. Our investment path is not fixed in stone and remains flexible. At some point in the near future, we will give up the "thinking" about what our composition should be for the portfolio. The composition, although still a conscious choice; may be as simple as FBALX.

WELL.......
Negative rates are supposed to stimulate the economy, incentivising investment by making it less attractive to hold cash and spurring demand by making credit cheaper. But evidence of the theory working in practice is far from conclusive. Certainly Europe’s bankers are squealing, as they feel margins squeezed by low rates on lending and a reluctance to pass on negative rates to depositors.

Why did Europe promote negative interest rates?
Our Federal Reserve system and Treasury may operate within boundaries that are not available to the ECB (European Central Bank) functions, as the euro area's fiscal and financial rules are not similar. I will not expand this difference here. One may readily discover facts of their choice.
Suffice to note that the U.S. moved to Quantitative Easing, while the Euro Zone remained with a policy of austerity after the market melt in 2008. Many here will recall the rough times in Europe for several years following the melt.

As to investment grade bonds today. IMHO, one can not (yet) invest in bond funds that will allow for the steady eddy yield and pricing from the days of yesteryear; to take one's investment into the future without a care and the feeling of protection against the nasty's. Keeping in mind, that as long as there are buyers, don't be concerned with the yield; as your pricing/capital appreciation will out perform the yield expected.
My own question(s) to these type of bonds, is how long will purchases remain in place; IF the yields continue to trend to the negative zone??? Purchasers being the big investment houses, hedge funds, pension funds, insurance companies, sovereign wealth funds and individuals, etc.
With some of this in mind, this house has not been inclined to purchase investment grade bond fund(s) for any sake of yield; as this is third place in thought. First and second place belong to a cushion against the current political strains globally and what this may also bring for global equity(s). Yes, a protective place generating some yield and more so; since the mini melt in December of 2018, decent price appreciation. Early 2018 found a U.S. equity blip in February and a few rough patches until the mini melt in December. Early equity market tremors? I won't begin to suggest this knowledge; but money continues to run to IG bonds.
IF U.S. yields continue downward for whatever reason(s), what are the impacts?
--- CD's.....the folks who do not and/or will not invest in the markets, and maintain monies in CD's
--- financial institutions.....will they be able to maintain a proper spread (deposits/loans) to obtain a profit?
--- consumer loans.....mortgage, auto, etc.; would consumers take on too much cheap debt?
--- corporate bond issuance..... more or too much debt, and for what purpose?
--- private pension funding
--- insurance company(s) products, including annuities
and more.
I remain with the thought, as from 2009; This Time Is Different, at least for my investing period.
Your thoughts please.
Thank you for allowing my self therapy. :)
Catch

FYI: Major U.S. stock indexes swung between small gains and losses Monday as investors looked ahead to meetings later this month where central bankers are expected to cut interest rates.
The Dow Jones Industrial Average rose 38 points, or 0.4%. The S&P 500 was down 0.1%, while the Nasdaq Composite fell 0.19%.
Monday’s move puts a pause on major indexes’ advance after two consecutive weeks of gains for stocks. Analysts said there was little new information to drive shares Monday.
Last week’s weaker-than-expected August jobs report reinforced expectations that the Fed would cut interest rates by at least a quarter of a percentage point next week. Lower interest rates tend to spur investors to buy riskier assets, such as stocks, over bonds, gold and other havens. This time is no different, with expectations of looser monetary policy contributing to most of the stock market’s gains this year, analysts have said.
Still, there is disagreement over how much the Fed should cut rates, leaving the stock market potentially vulnerable if the Fed fails to enact a more aggressive pace of rate cuts.
Treasury yields pared some of their gains after the Federal Reserve Bank of New York said Monday that inflation expectations a year and three years from now fell in August.
Rising yields helped lift the S&P 500’s financials sector, which was one of the biggest gainers Monday, rising 1.4%.
Beyond Monday’s broad gains, some individual stocks outpaced the broader market. Shares of AT&T jumped 2.7% after the activist investor Elliott Management disclosed a $3.2 billion stake in the company and released a letter to the board laying out a series of potential changes that it said could boost the stock.
Elsewhere, the Stoxx Europe 600 slipped 0.3%. Data released Monday showed German exports unexpectedly rose in July, a bright spot following a string of negative economic data from Europe’s biggest economy, though analysts said concerns remained that U.S.-China trade tensions could affect the German economy.
In commodities, Brent crude oil rose about 1.8% to $62.64 a barrel after Saudi crown prince Mohammed bin Salman appointed Prince Abdulaziz bin Salman, an experienced oil official and son of the country’s king, as head of the powerful energy ministry. Prince Abdulaziz is expected to continue OPEC’s efforts to bolster energy prices by cutting production.
Regards,
Ted
Bloomberg Evening Briefing:
https://www.bloomberg.com/news/articles/2019-09-09/your-evening-briefing
MarketWatch:
https://www.marketwatch.com/story/stock-futures-point-higher-as-investors-look-to-central-banks-for-stimulus-2019-09-09/print
WSJ:
https://www.wsj.com/articles/global-stocks-tick-higher-on-china-stimulus-11568016549
Bloomberg:
https://www.bloomberg.com/news/articles/2019-09-08/asian-stocks-set-for-muted-start-to-the-week-markets-wrap?srnd=premium
IBD:
https://www.investors.com/market-trend/stock-market-today/dow-jones-extends-win-streak-5-big-stocks-rally/
CNBC:
https://www.cnbc.com/2019/09/09/dow-futures-move-higher-investors-wake-to-new-chinese-exports-data.html
Reuters:
https://uk.reuters.com/article/us-usa-stocks/stimulus-hopes-buoy-wall-street-financials-lead-gains-idUSKCN1VU17Y
U.K:
https://uk.reuters.com/article/uk-britain-stocks/uk-bluechips-give-up-gains-as-sterling-strengthens-idUKKCN1VU0KU
Europe:
https://www.reuters.com/article/us-europe-stocks/european-stocks-close-down-as-london-lags-banks-shine-idUSKCN1VU0L6
Asia:
https://www.cnbc.com/2019/09/09/asia-markets-september-9-us-china-trade-china-economy-currencies.html
Bonds:
https://www.cnbc.com/2019/09/09/us-treasury-yields-higher-ahead-of-new-data.html
Currencies:
https://www.cnbc.com/2019/09/06/forex-markets-us-economic-data-in-focus.html
Oil:
https://www.cnbc.com/2019/09/09/oil-markets-saudi-arabia-in-focus.html
Gold:
https://www.cnbc.com/2019/09/09/gold-markets-monetary-policy-in-focus.html
WSJ: Markets At A Glance:
https://markets.wsj.com/us
Major ETFs % Change:
https://www.barchart.com/etfs-funds/etf-monitor
SPDR's Sector Tracker:
http://www.sectorspdr.com/sectorspdr/tools/sector-tracker
SPDR's Bloomberg Sector Performance Pie Chart:
https://www.bloomberg.com/markets/sectors
Current Futures:
https://finviz.com/futures.ashx

Just another article about how index funds must be better than actively managed funds. He does not appear to have a real interest in looking at Fidelity's date funds:
"As I was reviewing the list of investment options in a reader’s 401(k) plan, I realized that Fidelity offers two different versions of its target-date funds."
Must have been an intensive review, because he missed three other series of Fidelity target date funds: Managed Payout, Simplicity RMD, and its newest series, Freedom Blend funds (more on that below).
Fidelity 2020 Target date funds (five series)
"Here are two mutual funds managed by the same company, with identical goals. The only apparent difference is active vs. passive management."
Apparently, a 1-2% difference in allocations between the two sets of funds wasn't apparent to him. Here are M*'s reports on the two Freedom series he discusses. The first row of numbers under the glide path figure in each report are the equity percentages held by the series for each target year.
M* Freedom Target-Date Fund Series Report (12/31/2018)
M* Freedom Index Target-Date Fund series Report (12/31/2018)
From the Index series report:

Despite the notable cost advantage, each Freedom Index fund lagged its Freedom series counterpart since the Freedom Index series' late-2009 launch through December 2018; the funds underperformed by 15-73 basis points annualized. The absence of active management and certain subasset classes, like high-yield bonds, from Freedom Index contributed to these re-
sults.

Whoops. At least Merriman's column is labeled "Opinion".
Regarding the Freedom Blend Funds (from Barron's, no subscription needed for the article):

Actively managed funds will comprise a bigger slice of the pie in areas where the markets are less efficient and active managers can add more value, says Andrew Dierdorf, co-manager of the Freedom Funds. That will primarily be in small-caps, high-yield bonds, floating-rate loans, and emerging markets. The funds’ underlying exposure to large-cap equities and government fixed income will be more index-oriented, he says.

https://www.barrons.com/articles/fidelitys-latest-gambit-for-your-retirement-savings-1536247498

FYI: American Funds’ multimanager approach has long served its equity investors well--and should continue to do so, thanks to parent Capital Group’s strong, results-oriented investing culture. Indeed, 13 of the 14 American Funds equity offerings with a forward-looking Morningstar Analyst Rating are medalists, including 10 Gold-rated funds.
Regards,
Ted
https://www.morningstar.com/articles/944346/understanding-american-funds-equity-lineup

DF Dent Mid Cap (DFDMX) is new to my portfolio this year and this is the company's first annual report I've received.
https://s3.amazonaws.com/221-DF_DENT_FUNDS/221-ANR-0619.pdf
It's an impressive document on many counts. Their discussion of indexing vs. active management is really insightful and gave me a better understanding of the consequences of choosing one or the other, including an ominous prediction of what might happen to the market if all the new index money suddenly wanted to get out the door at the same time. Dent claims they would not be much affected by such an event, but I took that with a grain of salt. The Dent managers of their three strategies explain in detail rarely found in other annual reports how they initiate positions, how they prune, and how they re-balance and why. I followed the mid-cap fund for a while after Kipplinger put it on its list of "25," and I did the same after Barron's highlighted the Premier Growth Fund. Both endorsements, according to the report, resulted in money flowing in. DF Dent is a Baltimore firm in very good company: TRP, Brown Capital, and Brown Advisory hang out there, too. Most annual reports I read are pablum; this one has flavor and substance.

"... It attracted more capital in last quarter of 2017 than in the first six quarters of its existence. It ended the year with $1.6B, five times the level it started the year..."
Jeepers. Is that a lotta "dumb money," then? Thanks for replying, all of you. I track IOFIX but don't own it. I own PTIAX, which is not quite the same animal, but in the same ballpark, right?

I fail to see what relevance the last quarter inflows in 2017 has to do with now September 2019. IOFIX has trounced every bond fund in the multi sector, emerging market, high yield corporate and high yield muni, as well as the non traditional bond categories over the past three years with a 10.50% annualized return. There is no close second. I would think the dumb money is the money still waiting to initiate a position. When that occurs it may be time to run for the hills. In the meantime, its compelling story of being heavily invested in the ever shrinking legacy non agency rmbs arena continues.

@Lawlar: I suggest you hold MEIFX for at least six months and see what the new manager, Clay Freeman. can do. Here is his bio from the Meridian Web Site.
Regards,
Ted
Portfolio Manager
Clay is a Portfolio Manager for Meridian Enhanced Equity Fund and leads the risk management strategies and idea generation for ArrowMark’s multi-asset investment strategy. Clay joined ArrowMark in 2008 as an Investment Analyst and has supported the firm’s long-only equity and multi-asset strategies during his tenure. Prior to joining ArrowMark, Clay worked as a research associate at Janus Capital Group (2006-2008), where he focused primarily on the communications industry. Prior to that position, Clay worked as an Information Program Coordinator for the educational, non-profit organization Leave No Trace, which is dedicated to worldwide responsible enjoyment and active stewardship of the outdoors by all people (2001-2004). Clay graduated Phi Beta Kappa from the University of Colorado and earned an MBA with a Finance concentration from the Daniels College of Business at Denver University.
Funds Managed
Fund
Meridian Enhanced Equity Fund*
*Effective September 3, 2019, Clay Freeman serves the sole Portfolio Manager of the Meridian Enhanced Equity Fund.
MEIFX Overview:
http://meridianfund.com/strategies/meridian-equity-income-fund/overview/

"... It attracted more capital in last quarter of 2017 than in the first six quarters of its existence. It ended the year with $1.6B, five times the level it started the year..."
Jeepers. Is that a lotta "dumb money," then? Thanks for replying, all of you. I track IOFIX but don't own it. I own PTIAX, which is not quite the same animal, but in the same ballpark, right?

FYI:
Regards,
Ted
August 29, 2019
Dear WEALTHTRACK Subscriber,
Volatile U.S trade relations with China are immediately reflected in the financial markets but what about the economic impact? Could they push the U.S. into recession? On our website this week we have a podcast on the topic with leading global economist and strategist Nick Sargen.
On the television program this Labor Day weekend we are revisiting a recent Great Investor show with a global value manager. He is a long time holder of Berkshire Hathaway, even though the stock has badly lagged the S&P 500 so far this year. It’s basically flat vs. the market’s around 15% gain. On a total return basis Berkshire’s stock has trailed for the past decade. Berkshire doesn’t pay a dividend. The S&P 500 does which makes a difference. Berkshire’s stock has risen by nearly 260% versus the market’s more than 300% total return advance in the decade ended in 2018.
Despite Berkshire’s stunning record since 1965, 21% compounded annualized gains, this is not the first time that the company’s shares have underperformed the market for a decade. It has happened several times in recent years.
Berkshire has outperformed the market by double digits in every trailing ten year period since 1978, but it hasn’t had a double- digit advantage since 2002, and in recent years it has underperformed the market in three ten-year spans.
Even Warren Buffett himself admitted the company’s glory days of outperformance might be over. In an interview in the Financial Times his response to the question: if Berkshire would be a better investment than the S&P 500 he said “I think the financial result would be very close to the same.” He went on to say “…if you want to join something that may have a tiny expectation of better (performance) than the S&P, I think we may be about the safest.”
At a $507 billion market capitalization and few places to deploy it in enough size to make a discernible difference to the bottom line, is Berkshire just too big?
Over the years Berkshire Hathaway has benefitted from sizable stock buybacks in some of its major holdings. In Berkshire’s 2018 annual report Buffett cited American Express where its holdings “remained unchanged over the past eight years,” but our “ownership increased from 12.6% to 17.9% because of repurchases…”
In the same his 2018 Letter to Shareholders, Buffett said the company itself “will be a significant repurchaser of its shares…at prices… below our estimate of intrinsic value.”
What else does Buffett have up his sleeve to enhance shareholder returns?
The company has never purchased a tech stock. It recently bought Amazon and Buffett heaped praise on CEO Jeff Bezos. Berkshire has also never paid a dividend. Could that be next?
We’ll hear from Tom Russo, an avid student of Buffett’s style of value investing with no intention of changing his approach. Russo is Managing Partner of investment advisory firm, Gardner Russo & Gardner where he oversees around $11 billion including his Semper Vic Partners fund which he launched in 1984 after hearing Buffett address his class at Stanford. Semper Vic has generated 14% compound annual returns since inception, handily outperforming the S&P 500’s 11% returns.
The global value manager focuses on owning a small group of exceptionally well managed brand name firms - 19 at last count - with dominant, almost unassailable positions in their mostly consumer-oriented businesses and then holding them pretty much forever. Berkshire Hathaway has consistently been one of his largest positions.
On this week’s show I asked Russo, given Buffett’s modest expectations for the stock’s future performance, if he is rethinking the position.
Don’t forget, if you are away this weekend, it’s easy to take WEALTHTRACK with you! The WEALTHTRACK podcast is available on TuneIn, Stitcher, and SoundCloud as well as iTunes and Spotify.
Thank you for watching. Have a great Labor Day weekend, and make the week ahead a profitable and a productive one.
Best regards,
Consuelo

Nick Sargen Podcast:
https://wealthtrack.com/trade-war-impact-the-markets-economy/

Junkster: DITTO!
John, perhaps you do not recall, or were in a cave during the 2016 election cycle? Hillary carried a substantial lead throughout accordingly to "the polls". EVERY poll. Trump was expected to give his concession speech early on -- after he quickly "lost" Pennsylvania, Florida, and the Dems "Blue Wall". I mean, that is what the polls said would happen...
President Trump may win OR lose 2020. And I am sticking with that prediction. As a political candidate, the President has some undeniable handicaps: He has a massive ego, even compared to other Presidents. (And that is saying something.). He does a spectacularly poor job of broadening his base. In fact, he appears to have no interest in doing so. Most bizarre! And his oratorical style is blunt, brusque, and undiplomatic. If Obama was "eloquent", President Trump is "plain-spoken" and "unfiltered". Of course, that really is an issue of style. Lots of people on the Left are obsessed with style, thinking it more important than substance. While I concede I sometimes find the President's verbal style grating, I am much more focused on the substance of the man.
Candidate Trump has one big advantage though: His opponents. Bernie Sanders honeymooned in Moscow during the height of the Cold War. Talk about "Russian Collusion"! --- And not the kind manufactured by the opposition party... As for Joe Biden, imagine Joe Biden and the President on a debate stage two or 3 times. Think about that image for a while. Then, its pretty easy to see Joe spending the next 4 years anywhere but D.C....

It's not politics but trump will Loose this time for sure -13 points in most polls vs old joe/vp sanders (Dream team) .. 99%chance that Biden will win elections 2020
No need for recession

The accuracy of political polls ( Brexit and Trump) is akin to the accuracy of all the pundits who are forever predicting crashes.

It's not politics but trump will Loose this time for sure -13 points in most polls vs old joe/vp sanders (Dream team) .. 99%chance that Biden will win elections 2020
No need for recession

The accuracy of political polls ( Brexit and Trump) is akin to the accuracy of all the pundits who are forever predicting crashes.

It's not politics but trump will Loose this time for sure -13 points in most polls vs old joe/vp sanders (Dream team) .. 99%chance that Biden will win elections 2020
No need for recession

I kind of agree with Edmund on this one. A good pullback sooner better than later works for me. It has to come sooner or later anyway. Better now than December 2020.

@Derf, Yes, cash becomes a drag during the updraft; but, helps during a downdraft. For me, the income area generates enough income to meet my needs. With this, I have dialed my risk level downward during the past five years, or so. Thinking ... Why take on more risk than is necessary? Perhaps, I should do as Ted did a while back and just cash out. But, then I'd owe the tax man a good sum of money in doing just that from the realized capital gains I'd have. And, besides I'd lose a good bit of income that my portfolio generates. So, I'll just roll along and take what the market gives me (good or bad) and clip my coupons.

Years back when I was in the accumulation phase of investing I rolled with equity allocations, at times, upwards towards the 60% to 70% range along with holding about 10% in cash so when stock market pullbacks came I had some cash that I could put to work to take advantage of the pullback. Then as the stock market recovered I'd trim my equity allocation booking some of the gains made during and after the recovery.
Interestingly, the Vanguard risk questionaire, contained in the article, suggested, for me, a portfolio of 40% bonds and 60% stocks. And, I'm retired.
Now being retired, for the past five years, here is how I now roll with a description of my all weather asset allocation detailed below.
Old_Skeet's All Weather Asset Allocation.
My all weather asset allocation of 20% cash, 40% income and 40% equity affords me everything necessary to meet my needs now being in the distribution phase of investing. The benefit of this asset allocation is that it provides sufficient income, maximizes diversification, minimizes volatility, and provides long-term returns.
The 20% held in cash area provides me ample cash should I need a cash draw over and above what my portfolio generates plus it can provide the capital necessary to fund a special investment position (spiff) should I choose to open one during a stock market pullback. In addition, cash helps stabelize a portfolio during stock market volatility. Example of investments held in this area are cash savings, money market mutual funds and CD's.
The 40% held in the income area provides me ample income generation to meet my income needs in retirement. It is a well diversified area that incorporates a good number of income generating type funds. Some examples of investments held in this area are ISFAX, LBNDX & PONAX.
The 40% held in the equity area provides me some dividend income along with some growth, that equities generally provide, that offsets the effects of inflation over time. Some examples of investments held in this area are NEWFX, SVAAX & SPECX
Generally, for my income distributions, I take no more than a sum equal to what one half of my five year average total return has been. In this way principal grows over time.
I'm thinking that all investors should write out their investment plan which should include how they plan to invest during stock market declines along with both short term and long term goals. Then monitor their results and make adjustments as warranted including rebalancing their portfolio form time to time to maintain their established asset allocation.