The whiplash market we’ve had since October has been good for only one thing… It’s an excellent test of the balance of stocks to bonds in your portfolio.

For us gray hairs, that’s as important as watching our weight and blood pressure.

If after one of the many 500-point down days you dread opening your account page… you’re not alone. The feeling is common right now, and it is a good indication that your portfolio is too stock-heavy.

Don’t get me wrong. Everyone, no matter what age, should own stocks. It is one of the few ways available to keep pace with inflation. But most investors own only stocks, and usually the wrong kind.

So when the kind of market we have had for the past two months hits, which it always will, the market price stability bonds could have added becomes painfully obvious.

It shows up as account balance dread.

If you haven’t been able to ride out this market without constantly monitoring your balance or worrying about the indexes, it could be a warning sign.

Or if you have already made the biggest mistake the average guy can make and gone to cash to “cut your losses” or “wait out the sell-offs,” you definitely own the wrong securities and, very likely, no bonds.

On the stock side, we old hippies should own only companies that, no matter what the market throws at us, don’t worry us: large caps, proven survivors, dividend-payers and those that increase their dividends.

That’s it!

We can push the envelope and gamble as if we still have 20 or 30 years to make up any losses, but we all know that time in our lives is long gone. At least I hope you’ve realized that.

But the gaping hole in almost all gray hairs’ portfolios – the same hole your money falls through in a market like this – is the complete absence of the stabilizing force bonds offer.

Bonds don’t fluctuate in value as much as stocks if you own the right ones. This can add market price stability and reduce account value dread, which reduces the chances that you will panic and sell.

In reality, what panic-selling really does is ease the feeling of market and account value dread. And in case you haven’t figured it out yet, cutting your losses does nothing but establish them.

If the day when you’ll step down from the work world is coming into view or if you’ve already retired, you no longer have the time to recover from a major stock market drop – at least not with an all-stock portfolio.

But no one has ever had the time to recover from the losses panic-selling creates.

The shift to reliable, stable investments that produce predictable returns is no longer an option for us. This change is an absolute must.

Our cowboy and gambling days are over. Either shift gears now or get used to that feeling of dread.

Good investing,

Steve

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