It has been a wonderful run hasn't it? Since the spring of 2009 markets have moved significantly higher in their recovery from that recessionary time. We've come a long ways from those dark days and stocks reflect more normal valuations than they did before. It's a great time to think about two things in relation to our portfolios; how we'll feel about the next correction and how futile market timing is in the process of making good portfolio decisions.
Oft times we consider the first question as the process of market decline is going on all around us, but waiting until then may set us up for some unneeded bouts of fear and regret. Not having our plan firmly in mind when the times are good means that we'll be scrambling to re-think our strategy right when emotions are running high and our fellow investors are hurrying to the exits. Better by far to take stock now, when the mood and market state is conducive to good decision making. It's a great time to review overall portfolio allocations and put a dollar figure on the potential repercussions of a correction in the markets. Creating diversified portfolios helps to control volatility and reassures us that all our eggs aren't in one basket.
Of course we don't know just when markets will fall. We do know we'll have periods of declining prices for stocks. But one thing's for sure, when one sells stocks in anticipation of a market correction but it's sure hard to get the round trip right. We might sell at the perfect time and then never get back in, or we might sell at the absolute worst time and still never manage to get the 'all clear" and reallocate back to equities. Even the pros are mostly wrong in this endeavor as Mark Hulbert shares in a recent post. Market timing doesn't not only work to our benefit it often leaves us worse off than if we've never timed in the first place!