Your 6-month account statements from your 40lk or IRA have likely just landed in your mailbox, or your inbox. Since the major market averages are now nearly back to their all-time highs, the news should be good.

But your accounts likely went through a scary drawdown in April, after the shocking announcements of huge tariffs.

Even the professional investors scrambled to sell stocks and get out of the way of potential economic disaster. The major averages were all down roughly 20% from their highs.

Think back to how you felt in those early days of April. Even if you didn’t have the courage to look at your online account valuations, it was a scary time.

Did you sell anything? Were you tempted to sell, even as the market fell, hoping to avoid more losses? Were you paralyzed by fear – just praying the decline would end soon?

Or were you relaxed and confident that you could ride it out – even if a bear market took the stock market down 50%, as has happened at least four times in the past 50 years?

Obviously—but obviously only in hindsight – riding it out was the smart move. But in the midst of that fearful decline, did you just pray to “get even” – and promise yourself to “lighten up” if only you ever got the chance?

This is Your Chance
Well, your prayers were answered. The decline was sharp – and the rebound was equally sharp. You’re likely even. So, what are you going to do now?

This is not a market forecast, but a reality check. The next decline might not end so quickly, or rebound so immediately. Are you financially and emotionally prepared to ride it out?

If you’re many years from retirement, history says you should always ride out bear markets. After all, every bear market eventually ended, followed by new highs.

But those rebounds rarely arrived in two months. In fact, it took about 6 years to break even after the dot.com bust in March of 2,000, which took the S&P 500 down 50%.

And in the early 1970s, when the Dow peaked at over 1,000, it was still trading around the 800 level until mid-1982.

That’s a long time to wait to get even. Especially if you need to spend that money to maintain your lifestyle in retirement.

Trading Your Way to Get Even
These days there is instant access to trade the stock market, leading some to believe they can move quickly to escape the bear and reinvest in time for a rebound. History says no.

One study shows that for the period from 1961 to 2015, if an investor could avoid the 25 worst trading days, it would have nearly doubled the annual returns of the S&P 500 to 15.27%.

But missing out on the 25 BEST days, would slash annual gains to only 5.74%!

Adding to the difficult of timing the market, the “best days” often immediately follow the “worst” days of sharp downturns — a recipe for being whipsawed in the market. Remember, if you sell a stock or index fund when it’s down 50%, you need a 100% gain on re-entry just to break even!

That’s the argument for sticking with your stock investments, even at the most frightening times.

But it leaves just one question unanswered: HOW MUCH OF YOUR MONEY SHOULD BE INVVESTED IN THE STOCK MARKET?

Understanding Asset Allocation
If you’re a young worker setting money aside in a retirement account that won’t be used for decades, there’s a good argument for simply sticking with the S&P 500 stock index fund, contributing regularly no matter what the market is doing, and trusting in the future of America. That has been a 100% winning strategy so far.

But as you draw closer to retirement, or are already retired and no longer contributing, there’s a good argument for diversifying your assets to gain some protection against losing periods.

This is not a new idea. In 1986 Gary Brinson conducted a landmark study that concluded that asset allocation – the way investments are divided between categories such as stocks, bonds, and “cash” – is the primary determinant of long-run investment success. It’s a critical dimension of long term results.

Choosing among asset categories has two benefits. The first is performance. Not all classes of assets move in the same direction at the same time. That’s a rare phenomenon, only seen in unusual years like 2023. So having different categories can balance out the extremes.

But asset allocation provides another benefit. At a certain stage in life, having cash (“chicken money” in money markets, T-bills, and short-term CDs) can help you avoid the urge to panic in stock market declines – avoiding the pitfalls of trading on emotion.

Your asset balance will change as you age, and as your financial circumstances change – so it’s important to evaluate and make asset allocation changes in quiet times. Like right now.
And that’s The Savage Truth.