I usually keep a 80/20 stock/bond allocation, but early last month I noticed that I was down to about 62/20/18 stock/bond/cash because many of my managed funds had built up large cash positions. I was complaining about it because it was affecting negatively my portfolio's performance (when the market was still going up). Boy, am I glad my managed funds had pulled back on equities given what happened to the stock market in the past few weeks... Hopefully they'll be as good at calling the bottom as they were calling the top...
I think we are in for some serious volatility until we sort out the consequences of the credit bubble pop, which I think could take several months, perhaps more as I believe a huge number of ARM mortgages are scheduled to reset in 2008/2009. After having sliced, diced, repackaged and sold subprime debt to foreign and US investors for years, people are now starting to wonder what they bought and they are finding out it's not even worth the paper it's printed on. The dollar could suffer tremendously if foreigners lose confidence in US assets. And it could be especially bad I believe if the federal reserve lowers interest rates.
But if things are handled responsibly and cool heads prevail, I believe that US stocks are pretty cheap right now: when you consider that the S&P is close to where it was in 2000, and then you factor in inflation and the dramatic fall of the dollar over the past 7 years, I think I like the US market for the intermediate term at least.
One thing is for sure: a lot of wealth is being destroyed right now. Between the scary stock market, the even scarier RE market, hedge fund blow ups and losses in some parts of the fixed income market, it's not looking pretty for people's personal balance sheets...