Before the Next Market Drop: Why Buy-and-Hold Isn’t a Plan

Key Takeaways A portfolio needs a process for declining markets. Buy-and-hold may participate in long-term market growth, but investors should understand what their strategy is designed to do when markets fall sharply.Large losses are difficult to recover from. A 50% portfolio decline requires a 100% gain just to return to the starting value.Dynamic Asset Allocation (DAA) is designed to adjust with changing conditions. Rather than maintaining the same allocation through every environment, DAA can shift between growth-oriented and more conservative assets as market conditions change.Risk management does not eliminate losses. No investment process is fail-safe or guaranteed. The goal is to use a defined, repeatable process for evaluating when risk is increasing.Inflation, interest rates, bonds and the U.S. dollar can affect portfolios differently. Investors should understand how changing economic conditions may influence stocks, bonds, commodities and international investments.Your financial advisor should be able to explain the process. Ask what happens to your portfolio when markets decline, how investment changes are determined and how the strategy responds when conditions improve. Episode Overview Before the Next Drop: Why Buy and Hold Isn’t a Plan examines one of the most important questions investors can ask: What is the plan when the market goes down? Allan Malina begins by looking at economic forces moving beneath the surface of the markets, including inflation, interest rates, Treasury yields, the U.S. dollar and developments involving dollar-based stablecoins. He then turns to portfolio management and the purpose of Dynamic Asset Allocation. Traditional asset allocation often maintains a relatively consistent mix of stocks and bonds based primarily on an investor's risk profile. Dynamic Asset Allocation takes a different approach. It uses a defined investment process to evaluate changing market conditions and determine whether a portfolio should remain positioned for growth, change investments or become more conservative. The objective is not to predict every market move or prevent every loss. It is to have a disciplined process in place before a major decline occurs. That becomes especially important for investors approaching retirement. A significant drawdown shortly before or during retirement can change how long assets may last, when someone can retire and how much income a portfolio can reasonably support. Allan also explains why portfolio management should connect directly with an investor's financial plan, return objectives, risk tolerance and time horizon. Frequently Asked Questions What is Dynamic Asset Allocation? Dynamic Asset Allocation is an investment-management approach that allows portfolio allocations to change as market and economic conditions change rather than maintaining the same allocation in every environment. Can Dynamic Asset Allocation prevent my portfolio from losing money? No. Investments involve risk, and no investment strategy can guarantee against losses. DAA is designed to provide a repeatable process for managing portfolio risk as conditions change. Why are large market declines so damaging? Losses require increasingly larger gains to recover. For example, after a 50% decline, an investment must gain 100% to return to its original value. Is Dynamic Asset Allocation the same as market timing? DAA uses a systematic process to evaluate market conditions and portfolio risk. The emphasis is not on guessing short-term market movements but on following defined rules for portfolio positioning. What should I ask my financial advisor about market declines? Ask: What is the specific process for managing my portfolio if the market experiences a major drawdown? Your advisor should be able to explain how decisions are made, when portfolio changes may occur and how the strategy fits your financial plan.