Serious question, are you guys going to take your profits and sit on the sideline for awhile in anticipation of a big correction/retraction?
TOK, as I posted earlier under a different topic, I will not bail and sit on the sidelines but I will be sure and manage my risk exposure to within the parameters that I'm comfortable with......i.e., if I want 70% equity exposure in my total portfolio and it has appreciated to the point that my exposure is well in excess of my risk guidelines, I will lighten up on equities and invest in some other asset class in which I'm relatively under-invested. Interestingly enough, folks unknowingly often take more risk in their portfolios at precisely the same time that their equity return expectations should be the lowest - that is at precisely the time that future returns should be below normal. That is not the route for generating superior returns over time which is the key to wealth accumulation, imho. By not balancing their portfolios after a big run-up in stock prices folks are taking on greater risk - due to the outsized equity component - just at the time when the probability of continued outperformance by equities versus other asset classes is at its lowest. Hmmmmmm..... Jiffy.....a wise man once told me that you can never go broke taking a gain.......and that my net worth is always greater taking an after-tax gain than an after-tax loss.......
Can you give some examples of what you mean by asset class? Are we talking bonds, real estate, mortages?
Yes.....bonds, like stocks, come in a variety of different flavors....governments of various terms, corporates of various quality and terms, including high yield. Various stock sectors as well have underperformed of late, including utilities, financials, REITS and healthcare/pharma and biotech. In addition, international stocks, as well as bonds, real estate, and many different commodity classes, e.g., agricultural, metals, energy, etc. Well diversified portfolios would have exposure across the spectrum of these asset classes that enables them to produce results with lower volatility - i.e. risk - for similar return expectations.