With the stock market’s recent declines over the last couple of weeks, nervous investors may be tempted to move their investment portfolio out of stocks and into perceived safe havens, such as cash, bonds or treasurys. However, we believe that prudent investors include both stocks and bonds in their investment portfolios.
There is a reward for investing in stocks but also a risk that must be borne to reap that reward. Over the last couple of weeks, investors have experienced that risk, just as they did in every downturn over the past 200 years.
Here are a few reasons to retain stocks as part of a well-diversified portfolio:
If you are nervous, it’s possible your portfolio risk and your risk tolerance are mismatched. If so, a change should be made in your investment allocation. However, now is not the time to make that change. It should be done when the inevitable recovery is underway.
Remember Warren Buffett’s comment: “Be fearful when others are greedy and greedy when others are fearful.” Talk to your professional advisor. Let them know how you feel. Work with them to find the appropriate blend of portfolio risk and return that will enable you to remain invested through future bad—and good—markets.