By Tom Bradley

Maybe the hardest conversations we have today are with prospective investors who got out of equities in 2008 or early this year and did not get back in. What do they do now?

There is really just one answer to the question and then a bunch of execution issues.

The answer is: Make a plan to get your portfolio back to its long-term asset mix and get started.

A plan can take many forms, but in general it should lay out the timing and amounts for re-investment. For example, if you’re going to take a year to get back to a 50/50 mix of bonds and equities, then you might move 10% into equities today and another 10% at each quarter-end.

There are all kinds of factors that will shape what the plan looks like:

• The valuation in the market. We are currently advising caution with regard to asset mix (The Party is Rolling Again, so be Cautious), so we’re recommending clients move into the market at a slower pace than usual. Last year at this time when bond and stock valuations were particularly compelling, we encouraged clients to move faster.
  
• The risk tolerance you have with regard to the funds. Long-term retirement savings that need to earn a return well above inflation should be treated differently than a new inheritance that represents your mother’s life savings. In the case of the former, bolder steps are necessary.
  
• How far from the ideal mix you are. To go back to the earlier example, if you hold zero equities and your long-term asset mix is 50/50, then the early steps in the plan need to be more meaningful. The first step might get you half way there, with smaller increments to follow.

This is one of the toughest situations an investor can find themselves in. It’s gut wrenching and there’s no way to know what lies ahead (investors in this situation know that better than anyone). Which makes it all the more important that you methodically layout a plan as to how and when you are going to get back into the market.

A key part of executing the plan is acknowledging three things. First, this is about looking forward, not back. Second, you’re not seeking perfection. A plan that gradually works you back into the market will by definition be imperfect – the purchases will either be too early or late. Guaranteed. And third, what is the alternative. A week, month or year from now, there won’t be sirens going off telling you “now is the time”. And if there are sirens, they have a good chance of being wrong.

If your asset mix is far from where it needs to be, then it’s an imperative that you get a plan in place and start executing right away.