Are You De‑Risking or Market Timing?
Contributed by Doug Walters, David Lemire, Max Berkovich, Matthew Johnson
As stock prices continue to ascend, we find ourselves facing another growth trend – the frequency with which we are asked: “Should I de‑risk?” It’s a natural question. The answer, though, depends on why you are asking.
De‑risking done right
De‑risking is a strategic, medium-to-long‑term adjustment to better align your portfolio with the life you want to live. In its simplest form, it means exiting more risky holdings, like stocks, in favor of more stable, income producing bonds. It often follows a milestone: retirement within sight or a windfall you now want to protect, but it could also simply be the realization that you’ll sleep better with less portfolio volatility.
But de-risking is not always viable. The key test is whether your retirement plan still succeeds after the change. Lower risk means lower forecast future returns. Will you still meet your retirement goals with lower returns? If your forecast shows “yes,” then de‑risking may be worth the better sleep. Keep in mind though, that there could be tax implications as you sell equities.
Marketing timing masked as de-risking
The dark side of de-risking comes when it is more akin to market timing. For example, if one had a hunch that stocks are going to fall from their current lofty levels, and they de-risk to try and avoid the pending fall – that is market timing. Unfortunately for these fortune tellers, their crystal ball might not be as accurate as they hoped. They are not de-risking, they are speculating based on intuition. Unfortunately, intuition has no predictive power. Decades of evidence show that missing just a handful of the market’s best days can permanently impair long‑term returns—and those best days often cluster around the worst days. If you are not de-risking for the right reasons, you are better off staying fully invested at a level of risk appropriate for you.
A useful historical reminder
When markets feel lofty, I like to recall the 1990s tech boom. Then‑Fed Chair Alan Greenspan warned of “irrational exuberance.” No one in the world likely had access to more data and information than Greenspan. But his famous words came in 1996 – many years before the market actually stopped climbing.
1996 may have been a good time to de-risk for anyone who found themselves with more money than they ever expected to have. But for those who tried to time the peak for the purpose of market-timing… they would have been way off. And let’s not forget, market timing is a two-step process. Not only do you have to get out at the right time; you also have to be lucky enough to get back in at the bottom.
A simple decision rule
Ask yourself two questions:
- Would I still want this lower‑risk allocation if markets fell 15%? If yes, that’s de‑risking.
- Does my retirement forecast still work after the change? If yes, proceed—thoughtfully, being mindful of taxes.
If either answer is no, you’re probably market‑timing.
How we implement
We don’t predict; we prepare. We will help you stick to your plan and the risk allocation that is appropriate, given your ability, willingness and need to take on risk. When de‑risking is desired, we can show you the implications to your retirement forecast and help you weigh the merits of any action.
Headline of the Week
Delayed Gratification
After a nine-day delay, the CPI report finally landed, bringing some relief. Headline and core inflation both came in at 3% year-over-year, easing fears that tariffs would push prices higher.
After its last meeting, the Fed signaled the possibility of two more rate cuts this year. This report appears to keep that plan on track, with markets pricing in near-certainty of a cut this week.
The dual mandate remains in focus: inflation is still above target, while the employment picture continues to weaken. The balance of 2025 looks more like taking the foot off the brake than hitting the gas. With inflation still a concern, the Fed may keep its foot hovering over the brake—ready to tap if prices reaccelerate. In many ways, policy is shifting from “emergency brake” to something closer to adaptive cruise control.
The Week Ahead
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