So, you sold more stocks than you probably should have ahead of the debt ceiling negotiations and now you're wondering how to get back in, because since then, the major averages advanced a few percentage points. Well, based on my experience, you are not alone. For most investors, it is actually harder to buy back into stocks than it is to invest in the first place.
Please don't beat yourself up over it. All of your investment activities should be viewed through the prism of your risk tolerance, goals and time horizon. If reducing risk by bailing on a portion of your stocks was in line with those three objectives, then good for you; you made a smart decision. Personally, I'd rather de-risk a little ahead of a major event that could crush my investment portfolio and miss out on some upside if stocks wind up ripping higher should the event come to pass without a hitch. It's been said that a little fear is a healthy thing and after all, no one is going to bail you out of a decimated portfolio, right?
But what if you acted hastily and you later realize that maintaining a certain portfolio allocation to stocks was part of a long term strategy; that you had a temporary lapse of discipline and now you regret it? Again, it is perfectly OK to act to protect yourself. The issue is most likely that you didn't have a strategy to get back in once the scary event passed.
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We pros also lighten up on risk ahead of potentially major market moving events, but the difference is that we are employing strategies that are looking beyond the event. Regardless of any particular upcoming event, we're always on the lookout to lock in a little profit and either hold onto the cash or reinvest the proceeds into something else. Portfolio management is a never ending cycle of expanding and shrinking our equity exposure over the long term to potentially earn the best risk adjusted returns for our clients for the least amount of risk.