Attempting to time the market, getting in at the lows and out at the highs, has long tempted many investors, but history has proven it is a difficult task. Market movements are driven by a complex mix of headlines, data, and emotion, and are inherently difficult to predict. More often than not, individuals who attempt to move in and out of the market miss periods of sharp recovery and end up compounding mistakes by reacting emotionally to short-term news.

Instead of guessing where the market is going next, it is better to focus on what can be controlled: diversification and disciplined asset allocation. Diversification is the process of spreading investments across different asset classes, geographies, and sectors. The goal is not to avoid risk entirely, but to avoid being overexposed to a single source of risk.

True diversification means more than just owning a large number of stocks; it requires thoughtfully combining assets that respond differently under various market conditions. For example, when stock prices fall during a market downturn, bonds often act as an anchor by providing more stable returns and reducing overall portfolio volatility. This low or inverse correlation between asset classes helps cushion losses and smooth investment performance. Additionally, including exposure to international equities broadens the geographic scope of the portfolio, reducing dependence on any single country’s economic or political environment. By blending these diverse asset types, a portfolio is better equipped to weather different economic shocks, helping preserve capital and achieve long-term growth. This strategy has consistently proven effective, especially during recent bouts of market volatility.

It is important to recognize that asset allocation is not a static decision. Portfolios should evolve as personal circumstances and economic conditions change, but adjustments should be made gradually and with discipline. For example, as people enter retirement years, it often makes sense to lower potential volatility and risk by increasing exposure to fixed income, since they may have less tolerance for equity market volatility and less time to recover from losses before needing to utilize portfolio assets. Those who shift aggressively in response to headlines often find themselves chasing returns or locking in losses. A better approach involves incremental rebalancing over time, moving between growth and defensive positions based on long-term goals, not short-term noise. Techniques like dollar-cost averaging can also help smooth out volatility by investing a fixed amount at regular intervals, reducing the risk of mistiming a single, large investment.

Ultimately, success is not about predicting the next move in the market. It is about staying committed to a plan that is designed to weather both good times and bad. Time in the market, not timing the market, remains the most reliable way to build and preserve wealth over the long term.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.