Buy and Hold (and Pray)

The Post-Postmodern Asset Allocator: Why the title?  Here's the concept:  Asset Allocation as we've known it is probably dead.  Why probably?  Because there will be pockets of time where we'll be deceived into thinking things have returned to "normal", and your cookie-cutter run of the mill 70/30 portfolio (or any other iteration) will seem to be performing as it once had, but that will likely prove to be fleeting.  The traditional "diversify and rebalance" method promoted by brokerage firms and mutual fund companies works pretty well in bull markets.  Hence the popularity of the method during the 80's and 90's.  What the last decade has shown us is that buy and hold can leave one with flat to negative returns over a decade.  Where the S&P 500 lost 10.3% from November 1998 through November 2008, a standard growth allocation, 70% stock and 30% bonds, using the Fidelity Total Stock Market Index Fund and the Fidelity US Bond Index Fund, returned a cumulative 20.23%.  Wow!  That's, uh, 2.023% per year. Double wow! Need we discuss inflation?  Fidelity Cash Reserves Money Market averaged 3.4% over the same period with no volatility(Oh to be able to see the future).  I don't believe any of us can afford to buy and hold (and pray) any longer. How much better of we'd all have been had we simply protected our investments with trailing sell-stop orders.  Of course, you can't do that with traditional mutual funds and your friendly neighborhood mutual fund representative would not want you to.  They make more money on you in their traditional open-ended mutual funds (higher fees).  Exchange Traded Funds (ETF's) allow you to build portfolios with as much if not greater diversification, lower expenses, the invaluable ability to buy and sell positions intraday, AND, place stop-loss and trailing stop-loss orders to protect your capital.   Naturally you need to be more proactive with this method, but you'd likely have been sold out before the declines got horrific.  You probably would have been paralyzed with indecision (as with most investors), but at least you would have been in cash, not fully invested, and listening to your representatives advice to "Remember, you're invested for the long haul.  The market always comes back.  You're allocation is still appropriate for age and risk tolerance."  Blah, blah, blah. You should have been told, but never will be told, to sell.  It was quite clear to me since 2007 that something was wrong and that a recession was coming and the stock market was going down.  I got out then.  Did you?