Navigating Asset Allocation Decisions through Market Cycles

We frequently speak with clients about their asset allocation—especially during periods of significant market movement.

These conversations often revolve around the desire to increase equity exposure when markets are rising and reduce it when markets are falling. While this instinct is understandable, a visual representation can often help illustrate why market timing is rarely a successful long-term strategy.

The chart above, provided by Vanguard, highlights historical industry allocations across Equities, Bonds, and Money Markets.

What stands out is a consistent pattern: investor equity allocations tend to be highest near market peaks and lowest near market bottoms. Two main factors contribute to this trend—failing to rebalance and performance chasing.

Failing to Rebalance
When equity markets decline more than bonds or money markets, equities naturally become a smaller portion of the overall portfolio. Conversely, during strong equity market rallies, equities grow to represent a larger share. Without regular rebalancing, portfolios drift away from their intended allocation.

Performance Chasing
This behavior is rooted in emotion—investors often want to buy more equities when markets are doing well to avoid missing out and reduce exposure during downturns to avoid further losses. While this seems logical in the moment, it often leads to poor long-term outcomes.

Ironically, the result of these behaviors is that investors are typically overexposed to equities at market tops—leading to deeper losses during downturns—and underexposed at market bottoms—resulting in slower recoveries.

This is where working with a knowledgeable advisor can add significant value. At Beacon, our approach to asset allocation is rooted in academic research and tailored to your individual circumstances.

We emphasize disciplined rebalancing and avoid chasing performance, which helps remove emotion from the investment process.

To learn more about our approach, we invite you to watch our web presentation, Benefits of Portfolio Rebalancing, or reach out to us. We're here to help guide you with clarity and confidence through all market environments.