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I am not normally a fan of Jim Cramer, the loud, stock-picking host of CNBC’s “Mad Money.” That said, this week on the TODAY show he had a sensible reflection about the recent days’ market decline: “No one ever made a dime panicking.”


Most advisors, including me, preach staying the course, having a long-term goal, and an asset allocation model. We caution against selling out, especially now. We talk about risk/reward tradeoff, and pride ourselves on educating investors that the stock markets reward us in the long run for taking on additional risk.

All of this is easier said than done, of course. Especially in volatile markets like we’re experiencing now, especially with the 2008-2009 stock market crash still looming large in our memories.

One of the most satisfying conversations that I ever had with a client happened during the decline of 2008. I was checking in with him to see if he still felt okay about his overall stock-to-bond ratio (which was heavily stocks). His reply was an uncommon one: “If our allocation was fine for us a few weeks ago, then it’s fine for us now, and it will still be fine a few weeks from now, regardless of what happens.” At a time when many people were automatically thinking, “Oh, no, I have way too much in stocks – time to pull back!,” this client was thinking more clearly (albeit counter-intuitively!).

One of the worst things that you can do for a portfolio is to change allocations according to the stock market environment – that is, moving to a more aggressive allocation once the market is up (to enjoy, in theory, any remaining upswing), and moving to a more conservative allocation once the market is down (to avoid, in theory, any further falls).

These sorts of activities usually make us feel better in the short term – the value of which should not be dismissed! However, either of those moves usually results in selling low (after the markets have dropped) and buying high (after the markets have risen), both of which are the opposite of what we’re all supposed to be doing, right?

The best allocation is an “all-weather” one – enough in stocks so that you are happy with your stock allocation in a good stock market (you don’t feel like you are missing out on any upswing), and not so much in stocks that you are worried in a down market (you don’t wish you had less allocated to stocks during a downturn).

We all do better with a little bit of guidance. Talk to your advisor if the recent market volatility is making you wonder whether your current allocation is the right long-term one for you.

If you’d like additional material, please read this summary on the current volatility being caused by the China market as well as “Eleven Tips for How to Stay Sane in a Crazy Market.”

Using asset allocation as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Please note: This blog post was originally written in 2015.  However, in light of the recent market volatility, S&W decided to present it again because the same principles are still very relevant and applicable today.

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