Now is the wrong time to try and "fix" your asset allocation

The stock market has turned on us to the tune of a near 25% drop in the DJIA in slightly less than a year, and so we’ve entered into a no-doubt bear market. Thus, many may now be thinking of changing their asset allocation, from being so aggressive with equities, to obtain more fixed income types of securities such as bonds and money market accounts. This article will explain why that is probably a bad idea, as it is truly too late for that now.

“But I want to stop the bleeding,” or “I have to save what is left in my 401k before it’s all gone,” are both common rhetoric I hear out of several friends and family members. Moreover, I see the amount of searches landing on my site increasing from the above types of queries.

Now let’s take my parents for example, who are still in their early 50’s, and use them as an example in my 3 reasons why this is the wrong time to change your mix:

3. They’re not planning on retiring until they are around 65, so they have over 10 years of investing left. If they were to move their money to “safer investments” such as bonds, they would likely miss out on any rebound their portfolio would have made. Bear markets (where the market loses 20% or more of its value) tend to last no longer than 2 years. Ideally, the time to make the change would be after the rebound comes.

2. You probably don’t know as much about the market as you think you do, same is true for the best investment managers. Many financial advisers simply see dollar signs in you, and if there are fees involved in selling your investments or in your buying different ones, they won’t discourage you with common sense. A majority of the baby-boomers did not start investing until later on in life, and did not pay any attention to these same market ups and downs that occurred in the past. You will lose in fees and potential market rebounds. This is not say that there aren’t some individuals or managers that are truly knowledgeable or willing to help save you from unnecessary fees, but my education makes me believe they will do anything to earn fees.

1. You cannot let fear or emotions dictate your actions, rather stick to the plan you developed when you began. If you did not start with a plan, maybe you randomly picked different mutual funds and or stocks, this is a good time to evaluate your current mix to see how you need to change it when a rebound occurs.

I hope this helps you understand why this is probably the wrong time for you to change your investments, rather let them ride and rebound.