Concerned about the current market turbulence, is it making you seasick?

Rarely does the news being broadcast touch on the basics that would relieve the fear felt by the average investor. Thus, it is not surprising that people feel queasy about today’s market.  

So, should you be worried? That of course depends on who you are and what you are attempting to accomplish from investing your money in the financial markets. Fortunately for most investors with a solid plan there is really no need to panic. A typical portfolio that would be suitable for most investors is the classic 60/40 or 70/30 mix between stocks and bonds with the largest percentage being allocated to the stock/equity portion of the portfolio.

The two classic asset allocations have fared well over the short-term, five year holding periods, in the scenarios to be discussed.  Since 1926, the two portfolios have done pretty well at keeping your returns in positive territory.  With either mix, you would have been well protected with the two portfolios performing similarly with no negative returns in any 5-year holding period ending after 1940.

Mathematically speaking, with either mix, your chance of staying positive occurs about 95% of the time if your money remains in the market for 5 years and your portfolio is properly rebalanced. Now, those are decent odds. If you were, however, unlucky enough to suffer a loss, it would have probably been no more than about 5 or 6 percent depending on which of the two portfolios you chose.

Why all the worries?  The odds are with a solid plan you should be fine.

Institutional investors, of course, will have a tougher decision given the pressures of outperforming their respective benchmarks. Nonetheless, their tactical asset allocation decisions should be less stressful if they have done the proper homework and have chosen an effective equity portfolio strategy.