Swearing Off Market Volatility

Doug Altabef, senior managing director at Matrix Asset Advisors in New York, which manages $800 million, said he will stick with his standing equity allocation -- about 60% -- in part because of modest expectations for this year.

"If you think individual investors are throwing money down a sinkhole because equity fund inflows are still strong, because you think we are on the verge of another March 2000, I would disagree," he said. "We're going to stay fully invested in equities, as requested by our clients. We're not market-timers, we're not moving in and out of equities and going into cash. We would do it if we thought people could do it well on a sustained basis, but we haven't seen that. It wasn't always pleasant, but we've done well staying in the markets."

Jack Ablin, chief investment officer at Harris Trust and Savings Bank in Chicago, remains overweight in equities, but he used part of his allocation from fixed income to move into commodities last month.

"We think that the supply/demand dynamic is still pretty powerful and will continue to be pretty valuable," he said. "As long as Treasury bill yields are below the rate of inflation, that's a favorable backdrop for commodities."

Many smaller investors will have trouble getting into commodities unless they look at the Pimco Commodity Real Return funds or Refco's S&P Managed Futures Index Fund, though most investment professionals also say there's little reason to move quickly when considering one's own allocations.

With a dedicated investment plan, individuals don't have to try and mimic their counterparts at big investment banks and larger funds.

"You've got to be willing to give something up on the upside in order to protect your profits on the downside," Freedman says.

Most importantly, smaller investors need to look at their own goals and tolerance for risk, rather than seek crystal-ball insights into market behavior, said Peng Chen, director of research at Ibbotson Associates.

"If you believe that the stock market is going to underperform not just this week but over the long term, you may want to consider changing your focus," he said. "If there's a fundamental belief that equities won't do so well, there's reason to change your allocations, but it shouldn't be based on this week's market performance."