In the Long Run, Moving to Cash When Markets Get Volatile Rarely Works Out

If investors sold out of some of their equity allocation, most of the stock market is on sale now, meaning that prices are down 10%, 20%, even 50% from earlier in the year. Now may be the time to deploy some of that cash back into areas of the stock market that have gotten overly discounted. High-quality companies, value companies and companies with sizable dividends can all make sense in this market environment and tend to be less volatile than more growth-oriented companies.

Another place to look is alternative investments, which can have very low correlations to stock and bond markets. Absolute return funds, merger arbitrage funds, and private equity and credit are all areas with much lower correlations to traditional stock and bond markets but can provide added sources of return.

Timing the market is nearly impossible, and waiting for the markets to look or feel safe will probably result in missing a market rebound. It’s OK to shift allocations or rebalance portfolios as market conditions warrant. But historically, the best course has been to stick to your investment plan in good times and bad, and make sure your portfolio is aligned with your long-term goals.

Tim Clift is chief investment strategist of Envestnet Inc. (NYSE: ENV)