When Should You Avoid Equities?

"Staying the course" is usually the right advice for investors, except during the dotcom boom when valuations hit record levels

John Rekenthaler 15 November, 2018 | 7:19AM

Lehman Brothers Collapse

When should investors reduce their exposure to equities because valuations are too high? And should investors always “stay the course”? Looking at stock market history, there are a few occasions when it would have been wise to shun shares, but still you would have needed to be lucky with your timing.

Mechanical rebalancing is one way for investors to cut their risk exposure. If stocks perform well, such that a portfolio that was initially 60% stock/40% bonds becomes 70/30, then it's logical to rebalance to the original allocation. After all, nothing changed from the initial decision.  

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About Author

John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.

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