The hue and cry of market time and tentative investor alike, when things start to wobble, the best course of action is to head for the hills right?
Almost assuredly not.
What this nifty little chart, courtesy of J.P. Morgan Asset Management shows us is that over a ten year period the expected downside for owning a basket of stocks, drops from it's one year estimate of -37% to a paltry -1% , which is only slightly more than the risk of owning a portfolio of bonds. The math is known as reversion to the mean, the mathematical precept that over time, all returns converge towards their long-term averages.
Yet, for those who think that they're reducing their volatility and cutting their risk exposure by "getting out" in the face of daunting times, you'll actually find that the "clock" on time diversification more or less restarts every time you get back in.
So, if your goals were to avoid the tumult you're actually creating your own embedded level of tumult by resetting the clock on time diversification.
Better to develop and stick to a long-term plan than to raise the risk by moving in and out.