Almost every brokerage firm, financial
services company, and bank will recommend a variety of
allocation models based on different risk profiles, from
the completely risk-averse, or very conservative, to the
very aggressive. Companies may revise their recommendations
from time to time, though rarely dramatically, as the outlook
for the financial markets changes.
For instance, in a growing economy, brokerage firms may
put a heavier emphasis on equities in many of their allocation
models. On the other hand, in a contracting economy, or
during a recession, they may encourage investors to put
a little more money into fixed-income securities by emphasizing
bonds in their allocation recommendations.
Similarly, when interest rates are high, financial companies
may focus more on bonds in their allocation models. But
when interest rates are low, stocks may take center stage.
Through thick and thin
This doesn't necessarily mean you should change your allocation
based on your — or the experts' — predictions
on the direction the markets may be headed. For one thing,
it's impossible to predict the direction of the markets
with certainty, even for investment professionals.
Not only that, but the economy tends to grow and contract
in cycles. In the past, a period of growth has always been
followed by a period of contraction. If you're invested
for the long term, chances are that the impact of any short-term
or cyclical change in the economy will be counter-balanced
or offset by the reverse trend.
Rather than tampering with your allocation based on market
trends, you're probably better off choosing an allocation
strategy that works for you and sticking with it — at
least until your goals or your life situation changes dramatically.
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates
Professor
Roger Ibbotson, Yale University, chairman and founder
of Ibbotson Associates 
