In a very unscientific poll of a few acquaintances who claim to have a fixed percentage asset allocation between stocks and bonds, I asked whether they did any trading to maintain their percentages through the recent stock market turmoil. It turns out that none did.
The idea behind asset allocation is that when bonds are cheap, you sell some stocks to buy more bonds, and when stocks are cheap (as they were a couple of months ago), you sell bonds to buy stocks. If done properly, you are buying low and selling high.
However, if the few people I spoke to about this are any indication, even investors with a fixed plan often aren’t managing to follow their asset allocations at the very time when it would be most beneficial.
It takes courage to buy when the world seems to be crashing down around you. However, a financial plan isn’t worth much if you don’t follow it.