What a strange title after such a pleasant beginning to 2010. Don’t worry…no need to sell today. But, be prepared to make big changes in your portfolio as the year unfolds.

Emerging markets are on top because they have the ingredients that investors are looking for: Growth, Natural Resources (in many cases), High Savings Rates, Strong Work Ethics, and Products You Can Drop on your Feet.

Two items in the news this week should strike most investors as interesting milestones: China outexported Germany in 2009 to become the world’s top exporter and Chile was invited to join the OECD. I do not remember reading those predictions in the year 2000 (or even 2007).

But those achievements (and investment returns) are now historical and we need to look forward. Will the emerging markets theme continue? For now, the answer is yes. The System is still recommending emerging markets in those portfolios that have them in their universe. Will the emerging markets theme falter and will we need to switch into other asset classes at some point in the future? The answer is: probably.

But will we be ready to make the switch when the signal comes? Let’s consider three examples:

  1. You buy some packaged vegetables from the grocery store. When you pull them out of the refrigerator later, they have gone bad. What do you do? You throw them away rather than risking your health by eating them.
  2. You buy a car. Very quickly, it develops mechanical trouble. You make several trips to the mechanic but nothing seems to get the car working correctly. You have a lemon. It is time to sell or you might end up on the side of the road.
  3. You make an investment in a mutual fund or a stock. The investment starts to lose money. When you open your monthly statements, you notice that it is falling while other investments are rising. Do you sell it?

While the first two cases are straight forward, in case three, the answer is not so clear cut for many of us.

Selling the investment will be painful emotionally and financially. However, it is not immediately clear that holding onto the investment is as damaging as eating rotten food or driving an unreliable car.

Perhaps the investment will regain previous levels. If that were to happen, then perhaps the initial investment wasn’t a mistake after all.

So now we have uncovered the emotional comfort of “Buy and Hold”: One need not recognize a mistake.

To think about it another way, “Buy and Hold” equals “an obsession with being right.”

But since no one is right all the time, will that help you reach your financial goals?

Probably not. That’s why we advocate the unemotional IRP system to signal when to change your asset allocation.

In each of the charts here and on our website, we hope to show you how the system outperforms a simple Buy and Hold of the underlying assets while still retaining the benefits of diversification in your portfolio.

Let the IRP System take the emotion out of your asset allocation so that you can reach your investment goals.


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