It has been a rough October, the kind of month that has many retirement investors stopping to take stock of their assumptions. Too often, though, they react to “down” months like this one by making wholesale changes to their investments.

Can you make the right move at the right time? Can anybody? Princeton’s Burton Malkiel, author of A Random Walk Down Wall Street and a member of the Investment Committee of my firm, Rebalance IRA, calls market timing a “particularly dangerous” pastime. He’s never met anybody in 50 years who could do it, nor known anyone who has known anyone who could do it.

Market timing is a major mistake, and here’s why: The stock market often posts intra-year declines, then goes on to have a positive full-year return. You could almost set your watch by it.

This year’s rough patch is the least surprising of all. Other than a brief setback in late January, stocks have risen slowly, extending one of the smoothest bull markets in history. The VIX Index, the so-called “fear gauge,” has been well below its long-term average for the last three years.

As of October 15th the S&P 500 had fallen 7.4% from its all-time high. Since 1927, stock market declines of 4% or greater have happened every 2.5 months. The average loss during these declining periods was 8.9% and the drops lasted on average 27 days.

Comparatively, the current bull market, which began in March 2009, has seen an average decline of just 6.8%, lasting 19 days.

Since 1980 the S&P has been positive 26 out of 34 years. Between 1980 and the middle of 2014 the S&P 500 has risen 17 times over, including reinvested dividends. That’s an approximate compound annual return of 8.5%.

Nevertheless, in every year there have been intra-year drops averaging 14.4%. In fact, since 1928 there has never been a year during which the S&P 500 has not lost at least 2.5% at some point before year-end. Over that longer time period, the average intra-year drop was 16.7%.

Despite the drops, the market finished higher in 62 out of those 86 years. This dynamic occurred even in the dramatic year of 1987, when the S&P 500 fell 33.5% between Aug. 25 and Dec. 4 and still delivered a positive total return for the full year.

Likewise, in 2010 stocks slumped 16% between April and July then finished up 13% for the full year. In 2011, the market sank 19.4% between April and October but still squeezed out a small gain for the entire year.

Stay the course

The lesson is simple enough. Markets rise over time. Disciplined rebalancing and the right asset allocation help you the stay the course, managing risk along the way while positioning your retirement portfolio to profit from steady, long-term market gains.

That’s what we do at Rebalance IRA for our clients, and it has proven time and again to be the right way to approach seemingly troubled times in the markets — with perspective and a consistent, realistic plan that works.

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