In summary, while investing for the long-term creates a higher probability of success, it is equally important to manage risk within the framework of your investment goals. Staying fully invested does not mean “set it and forget it”. Diversification across asset classes with low correlations and selecting sub-sectors within assets class that pose less risk can allow investors to remain invested and minimize the key drivers of the market’s weakness.
New developments in investment products such as hedged equity exchange traded funds based on passive indices are also a great way to remain invested while limiting downside risk. As David Kelley, Head of JP Morgan’s Global Market Insights Team, stated years ago, “the market doesn’t settle down, it settles up”, and hedged strategies and lower risk allocations allow investors to get it right twice.