I’ve posted Entry #447 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called Five Strategies for Weathering Market Declines Ineffectively.
Juicy Excerpt: There is nothing difficult in knowing when to lower one’s stock allocation in response to increased risk. The historical return data showing us how stocks have performed starting from any of the various CAPE levels is available to all of us. Investors who want to keep their risk profile constant by adjusting their stock allocation in response to big price swings can do so. That strategy has always paid off in the long term. It is certainly so that investors cannot guess in advance when price drops are going to appear. But there is no need for investors to pull off this parlor trick. Investors who keep their risk profiles roughly constant over time do well in the long run. You don’t need to know the precise time when the strategy is going to pay off to understand why sooner or later it will. Stocks are a more risky investment class at times of high valuations. Investors should respect that well-documented reality.
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