Should You Or Should You Not?

The current market rebound along with the questionable (and stimulus induced) economic recovery has some readers wondering to what extent they should participate in the current upswing.

Here’s what Paul had to say:

In spite of your skepticism regarding whether or not the market can hang on to recent gains, the trend for both US and International stocks has been very strong. Are you at liberty to say whether or not you are 100% invested yet? If not, what will it take to get you to a 100% equity position?

Personally, I am now 75% into equities, (US and International) but mentally I’m having difficulty investing my remaining 25% cash position, as this market has run up so far so fast.

That is very close to my general allocation. As I pointed out last Saturday, during this current buy cycle, mutual funds in general have been steadier and have resisted market pullbacks better than ETFs.

As a result, some of the 401k accounts I manage were able to reach a 100% invested position fairly quickly while others did not due to whip-saw signals. Predominantly, I have stayed in hedged positions but have added outright longs as well.

Should you now invest the balance and become 100% invested? Since no one can look into the future, I suggest you look at the risk you will be taking.

Say, your portfolio is worth $100k, of which you currently have invested $75k. If you add another $25k to your position, and the markets head south, your risk based on a 7% trailing stop loss would be about $1,750, which represents a loss of 1.75% of your total portfolio. If you’re moderate to aggressive, that is an acceptable risk to take, however, only you can make that decision.

If you’re the conservative type, you may be happy with your 75% allocation and leave it at that. Remember, your comfort level with market exposure is what matters most, not what others tell you should do.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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