You've heard plenty about how last year's market slide has set up an unparalleled opportunity in stocks. So if you were lucky enough to have a decent portion of your money in bonds or cash last year, should you throw caution to the winds and bet big on a recovery by moving it all into stocks?

It's certainly a tempting proposition -- if you time things right and the market pulls up at exactly the right moment, then you'll magnify your returns by having more of your money in stocks. Historically, big market drops have been followed by exceedingly strong recoveries, giving those who bought at the bottom extraordinary returns.

All that said, my answer to the original question is no. Stick with your plan, and hold onto the nonstock part of your portfolio.

Say what?
Yeah, you heard me. I know what you're thinking: You're chomping at the bit, wanting to earn back all that money you lost last year. You want to get back on the road to a comfortable retirement, and you want the reassurance of seeing your brokerage account balance go up. I understand that impulse -- I feel it, too.

But even if it means missing out on the best opportunity in decades, you shouldn't just chuck all of your planning out the window and gamble on what's going to happen next -- no matter how much you may believe it's a sure thing. Although most people should have at least part of their money in stocks, there are good reasons why you also should keep some of your money in other types of investments.

There are no guarantees
The thing is that as attractive as stock valuations may seem, you can't be sure that they won't drop further. Currently, earnings are plummeting along with share prices, so overall market price-to-earnings ratios still aren't even as low as they were two years ago. By that argument, the markets could fall a lot more before we finally put a bottom in.

Moreover, even if the overall market goes up, that doesn't necessarily mean that the stocks you pick to buy right now will be among the winners. After the bear market that ended in 2002, for instance, there were plenty of well-known stocks that never really participated in the ensuing bull run. Here are just a few of them:

Stock

Total Return, 1/22/2003 to 1/22/2007

Pfizer (NYSE:PFE)

(2.9%)

Dell (NASDAQ:DELL)

(0.3%)

Ford (NYSE:F)

(0.9%)

Eli Lilly (NYSE:LLY)

(10.2%)

JDS Uniphase (NASDAQ:JDSU)

(20.4%)

Novellus Systems (NASDAQ:NVLS)

(3.3%)

Boston Scientific (NYSE:BSX)

(19.7%)

Source: Yahoo! Finance.

So even when stocks may seem like a sure thing, you can never quite be sure.

Stick with it
And in that sense, arbitrarily messing with your overall asset allocation isn't any different from picking a stock to day-trade or trying to time the overall market. Rather than basing your investment decision on your financial goals or your current resources, you'd instead be simply looking to make a quick buck, using a strategy that bears plenty of risk.

As you look at your asset allocations, keep a few things in mind:

  • Falling markets. In all likelihood, the bear market has probably left your portfolio underweighted in stocks compared to your target allocations. So to rebalance, you'll already be taking advantage of low stock valuations.
  • Irrational behavior. The key to using asset allocation is that while you know some asset class will perform well over nearly any time period, you can't readily predict which one it will be. Just as stocks climbed over much of the 1990s with hardly any substantial corrections along the way, stocks could keep falling further. That's no problem for long-term investors, but if you're trying to capitalize on what you hope is a short-term dip, the results could be at best disappointing and at worst devastating.
  • Keep your eyes on the prize. The true mark of how you're doing is how far away you are from your financial goals. While 2008 probably set you back, drastic changes could be unnecessary -- or unwise.

Everybody wants to pick a sure winner. But in the stock market, there's no such thing. Even if you think the market's poised to skyrocket in the coming years, you still shouldn't bet your entire nest egg on it.

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Fool contributor Dan Caplinger has done his rebalancing, but he still has some money set aside outside stocks. He doesn't own shares of the companies mentioned in this article. Pfizer is a Motley Fool Income Investor pick. Pfizer and Dell are Motley Fool Inside Value selections. The Fool owns shares of Pfizer. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is no gamble.