Tactical Asset Allocation and Secular Bear Markets

Excellent advice from B. Ritholtz:

  • During a secular bear market, an investor’s job is to manage risk and preserve capital
  • During a secular bull market, an investor’s job is to maximize return

Before going further, a let’s review these key designations.

First, a “secular” market trend is a long-term trend. In this case, long term can be defined as anywhere between 5 and 25 years. While there will always be ups and downs, the primary trend will be in one direction or another.

A secular bear market is a long-term bear market with small bull markets every few years. A secular bull market is a long-term bull market with small bear market every few years.

Currently, many believe that a secular bull market in US equities ended in 2007, and a new, secular bull market has now taken hold.

Secular Bulls and Secular Bears

Click for a larger image

So what can you do?

Asset allocation allows you to deal with the ups and downs by having non stock holdings as well — Cash, Bonds, RE, and Commodities (GLD, OIL, etc,) that will offset stock weakness.

Simply put, tactical asset allocation is the method you use to buy and sell assets. This process includes what to buy and sell, as well as how much money to use at one time.

If your goal is diversification, then asset allocation is your plan. This means that diversification is the result or outcome of your decisions about buying and selling investments. For more background information, visit my page on tactical asset allocation at Invest-Safely.com.

Sources:
Tactical Asset Allocation During Secular Bears
The Big Picture
http://www.ritholtz.com/blog/2011/08/tactical-asset-allocation-during-secular-bear/

Tactical Asset Allocation
Invest-Safely.com
http://www.invest-safely.com/tactical-asset-allocation.html

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