Two weeks ago, I spoke at FreedomFest in Las Vegas, an investment conference with more than 2,000 attendees.

During one session with conference director and Investment U colleague Mark Skousen – billed as “Dueling Gurus” – I was asked how an investor should prepare for the next bear market.

[ad#Google Adsense 336×280-IA]Since the timing and duration of any down market cannot be known in advance, I suggested that investors should always be ready.


By following a position-sizing strategy, so you never have too much invested in any single security.

By running trailing stops behind your stocks to protect your profits and your principal.

And, most importantly, by checking your portfolio’s asset allocation and rebalancing annually.

At this point, Skousen interrupted to voice his strong disagreement. (After all, this was supposed to be a “duel.”)

“What a bunch of baloney,” he said. “Nobody is asset-allocating their portfolio. Nobody is rebalancing.”

“Sure they are,” I insisted.

“No, they’re not,” Skousen repeated. “Let’s see a show of hands. How many people in this room rebalance their portfolio?”

Boy, was I wrong. Only one hand in the audience went up. One hand!

And people wonder why they struggle in the stock market, even as it hits new all-time highs.

Asset allocation, as I’ve explained here before, is your single most important investment decision. (It’s how you divide your portfolio among different types of investment assets, including stocks, bonds, real estate investment trusts, inflation-adjusted Treasurys, gold shares, etc.) Rebalancing annually – which forces you to sell what’s high and buy what’s low – increases your returns while reducing your risk.

This is the very foundation of Serious Investing 101. Yet Skousen was absolutely right. Almost nobody is doing it.

In fact, many are doing the exact opposite. When the market slumps dramatically – as it did in the recent financial crisis – they sell their stocks and move to cash or bonds.

You might call that Inverse Rebalancing. (Selling what’s low to buy what’s high.)

Of course, when the market moves higher again – as it inevitably does – these same investors get restless and start complacently buying stocks again.

Then when the next bear market comes along, the whole process plays itself out all over again.

Could there possibly be a slower way of getting rich… or a quicker way of getting poor?

My experience at FreedomFest got me thinking. I know it is popular in the investment newsletter industry to say that you don’t need a money manager, that you can manage your money yourself.

And doubtless some can. But a substantial number – perhaps even the majority – lack the time, knowledge or temperament to do it effectively.

These folks would benefit from using an investment professional, provided it is the right kind.

What is the wrong kind?

  • Fee-hungry advisors who plunk your money into expensive investment products.
  • Full-commission brokers who manage your account on a transactional basis.
  • Insurance salesmen who believe variable annuities and whole life policies are the best things since night baseball.
  • Anyone who isn’t knowledgeable, experienced, trustworthy, cost-effective, fully vetted and without conflicts of interest.

Do such individuals truly exist in our current era of Wall Street greed and duplicity?

Indeed they do.

In [a future] column, I’ll explain how they operate… and how you can use them to gain precious time, boost your annual returns and dramatically cut your investment costs.

Stay tuned…

Good investing,



Source: Investment U