It’s back to basics for investors in turbulent times

The past few years have been troubling for investors. We saw essentially two bear markets and two bull markets. These turbulent markets have caused many investors to overlook or forget the fundamentals of solid long-term investment success. Just as baseball players take time each spring to review the fundamentals of good baseball, it is important that investors do a similar review of the fundamentals.

One of the main ones is asset allocation. Every investor should have goals, an asset allocation that is consistent with their goals and their risk and return requirements, and review it regularly. If it has “drifted” by more than 5 percentage points, investors should consider restoring it. For example, if their desired allocation was the classic 60% stocks and 40% bonds and is now 55% stocks and 45% bonds, they should consider selling some bonds and buying some stocks to get them back to their desired allocation. Changes in risk and return are highly correlated with changes in asset allocation.

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