At crossroads (again)?

Inflation? deflation? double dip? protracted recession? The directionless markets are symptomatic of a general malaise facing investors who are increasingly at a loss about how best to position their portfolios in an environment where visibility remains poor.

Pundits have been warning for a while that the long term bond rally has truly ended but bond yields have proven otherwise. They have in fact dropped to such an extent that a number of dividend paying stocks have become more attractive investments when compared to their bond counterparts.

The dangers of an uncertain environment is the risk of getting swayed by a particular strategy. Anticipating a double dip scenario, for example, may lead one to structure a more defensive portfolio that is likely to suffer if, instead, a surprise market rally kicks in. Same goes for targeting inflation/deflation strategies. If the opposite scenario materializes, the portfolio will undoubtedly suffer.
So how does one navigate the choppy seas? The most important point is to avoid getting swayed by emotions, especially when market turmoil is the norm. This can be accomplished by defining clear investment guidelines and ensuring that they are followed at all times. Asset classes should have a mid or "neutral" weight with defined bands around which one can tactically maneuver. By sticking to them, we avoid irrational behavior taking hold of our investments.
Markets move in cycles and attempting to time them can be a very dangerous endeavor. Sticking to reasonable guidelines ensures that we avoid the cyclical traps and instead concentrate the portfolio on the more important longer term secular trends that are more likely to ensure that we attain our investment goals.