The Three Most Important Things To Do Now

With apologies to the real estate industry, the three most important pieces of advice an investment advisor can give his or her clients right now are – rebalance, rebalance and rebalance. You and your advisor initially set an asset allocation – the percentage of your portfolio invested in stocks, bonds, cash, maybe real estate and commodities as well – for your investment portfolio. (If your investment advisor did not do this with you, make them your former investment advisor immediately.) The asset allocation was set based on your personal circumstances and risk tolerance. Even with Tuesday's monster rally, the stock market, as measured by the S&P 500, is down over 30% this year. So your portfolio is most likely out of balance. By rebalancing now, selling some bonds to buy stocks, you are increasing your odds of actually buying low and selling high. And the discomfort you feel in contemplating buying stocks right now shows why buying low and selling high is so difficult in practice while so obvious in theory. While past performance is no guarantee of future results, if you rebalance now, I think you will be very pleased you did in a year or two.