A client recently emailed asking me if, given the recent market downturn, we should rebalance his portfolio. Since I’m sure there are others wondering the same thing I though I’d share with you my response.

Rebalance? Probably not. However, if you have some cash you've been itching to put to work, now might be a good opportunity to do so.

I don't pretend to know what will happen in the markets over the next week or month or year. However, I do know that this health scare and its impact on the stock and bond markets has happened before and it will happen again. This market volatility is exactly why we create diversified portfolios--it's the best protection in market downturns. In 5 or 10 years I'm sure we'll look back at this time as a blip in an otherwise positively sloped market trajectory, but I don't know how long this "blip" will last. 

The way I look at stock market valuations is that it takes into account what we do know (trade interruptions/travel is being impacted by coronavirus) and to a certain extent some things we don't know (we think Q1 GDP will be lower than expected due to the coronavirus). Given that, there may be some new, bad news ahead that isn't priced into the market which would cause the market to decline further and we should be mentally prepared for that.

The key is to "stay the course" with any investments that you won't need anytime soon (i.e. retirement) and consider converting to cash any money that you'll need over the next year or two.