If you believe at all in the January Barometer (financial-folk-lore that if markets do well in January, the year will be good), then we’re in for a great year! The S&P 500 is up approximately 8% this year and most of the economic reports seem to be more upbeat than they have been in recent years.

So what is there to worry about? Well, in the words of Warren Buffett:

• “Be fearful when others are greedy, and be greedy when others are fearful”.

Looking for Safety:

When my 401k dropped nearly 50% during the Great Recession, I decided it was time to stop playing offense and beef up my defense when it came to how I invest my money.

So I read about a half a dozen books seeking the magic formula for building a safe portfolio. Among them were Higher Returns from Safe Investments” by Marvin Appel and “Your Money Ratios” by Charles Farrell. Although there was no “right answer”, each of them seemed to suggest one central theme:

• You need to increase your exposure to bonds.

“Bonds, who wants to invest in those boring things?” was my attitude before the Great Recession. My portfolio was mostly Mid and Small cap funds. Why? Because although those types of funds had the most amount of fluctuation, they also had the highest returns over time. If you’ve got years ahead of you to save for retirement, isn’t that the route you want to take?

Experience is the Greatest Lesson:

The Great Recession redefined the TRUE meaning of “risk” when it came to investing. Never again was I going to take on riskier funds without remembering just how LOW your investments can go.

So I’ve since changed my attitude about bonds. In fact, from the two books above, I’ve learned:

• Stocks return about 8% over time and bonds return about 6%.

• However, bonds offer much more stability and are less vulnerable to market fluctuations than stocks.

What Am I Waiting For?

Well all of that may be fine and good. But let us not forget the first rule of investing:

• Buy low, sell high

Unfortunately, the lowest-low of the Great Recession is not the time to “sell” your investments and lock into safe and slow investments. Although I don’t believe in timing the markets, the smarter thing to do would be to ride out the Recession and wait until my share values have come back to the prices they use to be before the crash. That way, I didn’t “lose” any money (although I realize there’s a lot more that goes into that statement than just share price). And so I’ve waited … And waited …

Lately the DOW is inching closer to its pre-market crash levels, which would be the highest it was ever recorded. This gets me thinking:

• If I want my portfolio to become more conservative, is now the time to switch it up?

What do you think? Was it wise to ride out the Recession without changing my asset allocation and locking into safer investments? Should I have just changed my investment strategy regardless? Is the current financial run-up just a temporary rise or will it soon evaporate? Please feel free to share.

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