Reader: My overall allocations are about

With the current bearish economy, I wonder whether I should reapportion my holdings to secure them better.

funds-newsletter: I'd say that the answer depends on several factors:

1) Do you definitely plan to start withdrawing any of the stock money within the next 5 years or so. If so, then I would reduce that stock allocation because stocks are not the place to be if you will need assurance that money will be there in periods as short as 5 yrs. If you are sure you wont need this money for more than 5 yrs, then you are probably OK with this allocation.

2) Are you a fairly conservative, meaning pretty risk aversive, type of investor. One way to think about this is if stocks dropped say 10 to 20% within the next few months, would you feel compelled to sell some or all of them. (In the last bear market, did you do this? If so, this means you are risk averse enough that you may not be able to deal with big drops in the market and may be "forced" to sell when prices are low.) If so, I would reduce the stock allocation to closer to 30 to 35%. If however you are what I would consider a moderate/average risk kind of investor, then I think your allocation is close to where it should be.

3) Finally, are you willing to keep an eye on your investments and make periodic (at least once a yr) changes? If not, if you reduced your stock allocation due to a poor economy, you might not be aware when things had changed enough to justify coming back into stocks in the months (or perhaps) years ahead. For example, stocks may continue to pull back until we are in a bear market. But, if that happens, we might not be in it for as much as a year until a bottom is reached, even as the economic data still show we seem to be in a recession. So, if that happened within the next 6-9 mos. as some economists are predicting for when we pull out of a possible recession, you might not be watching the investment world enough to realize this. In this case, stocks could possibly recoup all their losses over the next, say, 3-6 mos. If so, you would not come out ahead by reducing your stock allocation now.

For reference, in my own situation, I consider myself a moderate risk investor. I feel I have enough assets that I wont need any of my stock funds during the next 5 yrs. So, I am pretty confident that no matter how badly the market performs, I have enough assets in bonds and cash that I will not likely sell until stock prices have the time to recover, even if it takes more than 5 years. But, since I watch the economy closely, and do think we are in a dangerous period for stocks, I have reduced my stock allocation to around 50%. My bonds are about 30%, cash 15%, and some other types of investments about 5%. If this economic cycle is similar to other ones, stock prices may continue to do badly and bond prices well for at least part of this yr (maybe 6-9 mos perhaps but it could be longer). Then, as described above, I will look for signs that the worse may be past and increase my stock allocation back up to maybe 55 or 60%.