There remains an ongoing bullish bias that continues to support the market near-term. Bull markets built on “momentum” are very hard to kill. Warning signs can last longer than logic would predict. The risk comes when investors begin to “discount” the warnings and assume they are wrong.
It is usually just about then the inevitable correction occurs. Such is the inherent risk of ignoring risk.
In reality, there is little to lose by paying attention to “risk.”
If the warning signs do prove incorrect, it is a simple process to remove hedges, and reallocate back to equity risk accordingly.
However, if these warning signs do come to fruition, then a more conservative stance in portfolios will protect capital in the short-term. A reduction in volatility allows for a logical approach to making further adjustments as the correction becomes more apparent. (The goal is not to be forced into a “panic selling” situation.)
It also allows you the opportunity to follow the “Golden Investment Rule:”
“Buy low and sell high.”