I notice that sometimes financial journalists and newsletter writers give good advice at the worst possible time in the stock market.

I saw a few of these finger wagging missives near the bottom of what was a 23% drawdown in the Nasdaq 100 and a 19% drawdown in the S&P 500.

They tell you to manage risk when the market already got killed and you are already stressed out of your mind from losses and uncertainty.

But now that the market has bounced back to within a few percent of all time highs and while that anxiety caused by losses is still fresh in your memory, here’s a strategy you can deploy today when you can and not when you have to so you never have to go through that again.

I remember reading a story that Burton Malkiel tells about J.P. Morgan in his ode to efficient markets A Random Walk Down Wall Street. Malkiel writes,

J. P. Morgan once had a friend who was so worried about his stock holdings that he could not sleep at night. The friend asked, “What should I do about my stocks?” Morgan replied, “Sell down to the sleeping point.”

That’s it. That’s the whole thing. 

Right now, today, decide where your sleeping point might be and then position yourself accordingly.

Years ago, after reading this, I went with 65-70% invested in low cost broad market ETFs for my long-term accounts.

That way, if stocks fall 20%, I’m down 12 MAYBE 13% given that my cash position is earning 4-5%. 

I can sleep with that.

Three additional points:

1.  This not only improves your ability to sleep at night during the volatile times, but it also improves decision making during these periods. You will be much less likely to panic sell at the bottom.

2.  A lot of advisors are reading this and so if you are one you might want to recall which of your clients were most anxious during the recent turbulence and reach out to help them rebalance.

3. This is as much a post about self care and wellness as it is about the stock market. When you experience a lot of stress or if you are having difficulty sleeping, it negatively affects your health in more ways than you might imagine.

It might affect your body weight, nutrition, mood, exercise regimen, attention span, relationships etc…