Now That Stock Prices Have Rebounded, How Do I Protect My Gains?
That big, scary downturn at the end of 2018 may be in the rearview mirror, but that doesn't mean you can just forget it. Here are six steps investors can take to be ready for the next time.
Now that the U.S. stock market has recaptured most of its losses from 2018’s fourth quarter, many investors are breathing a sigh of relief. From its lows on Dec. 24, the Standard & Poor’s 500 Index, jumped 18% through the end of February. The index is now within striking distance of a record high.
It’s stunning how the consensus outlook has changed in just a couple of months. When the stock market was taking a nosedive late last year, some economists were predicting a dreary 2019, if not a downright recession. Many market participants were worried about the Federal Reserve’s intention to continuing hiking rates, new China tariffs were on the horizon, and the outlook for 2019 earnings was turning bleak.
Now that the Fed has softened its stance on near-term rate hikes and our leaders appear optimistic about the outcome of U.S.-China trade talks, some of those concerns feel like a distant memory. While U.S. economic growth is expected to slow this year, most experts still expect it to outpace the majority of other regions in the world.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Investors Can’t Afford to Get Complacent
The recent rebound is certainly good news; but it may also may be a wake-up call for many investors. If December’s sinking stock market caused some sleepless nights, now may be a good time to evaluate your tolerance for a possible bumpy ride in the future.
Eventually, the economy will falter and enter a recession, which will likely send stock prices lower. When that happens, it will be too late to begin selling stocks that will drag down your overall portfolio.
Here's What to Consider Doing Now
To protect the gains we’ve experienced so far in 2019, now is a good time to assess your investment strategy and make any needed adjustments. Here are six recommendations to consider in achieving that goal:
- Rebalance your investment portfolio to reflect the right mix of stocks and bonds. For example, if your overall goal is to invest 60% of your portfolio in stocks and 40% in bonds, the rise in equities has likely tilted it too heavily toward stocks. If that’s the case, any downturn in stocks will have a bigger impact than you’d planned for. Instead of getting greedy, stay disciplined and trim the percentage in stocks to get back to your target.
- Maintain a diversified portfolio. The values of many stocks are quite high. These stocks are expensive, so avoid the temptation to jump in and inve.st in stocks that are wildly popular; at some point, even the fastest-growing companies experience a slowdown in revenue and earnings growth. When that happens, you can scoop them up when they are on sale.
- Establish a range for the percentage of your portfolio that consists of stock, and consider moving toward the lower end of that range. For example, if you are comfortable with 50% to 70% of your portfolio in stocks, today’s high valuations would suggest moving toward the bottom of that range.
- Consider investigating companies or markets that have lower valuations than the broad large markets, such as the Standard & Poor’s 500, which is at times dominated by a relatively few big companies. Also, many foreign markets have not risen as much as the U.S. markets, and therefore some are more attractively priced.
- Think about bumping up your cash position. If you are retired and are making regular withdrawals from your investments, consider keeping enough money in cash and short-term bonds to cover your expenses for two to three years. This strategy can offer protection when there is a downturn in stock prices. You will not be forced to sell investments at a lower price to provide income, giving you more security to ride out any storm.
- Take a look at your debt picture. If you have excessive debt, use gains from the run-up in stock prices to pay down some or all of it. Paying off a large amount of debt will improve your personal balance sheet and save money by reducing interest payments.
The Bottom Line for Investors
All of us want the peace of mind that comes with a sound, long-term investment plan. When times get tough, we don’t want to be scrambling to react to the latest piece of bad news in the stock market. To avoid that scenario, take time now to review your plan and make sure it’s the one that makes sense whether the economy is good, bad or ugly.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Mike DeWitt is a Partner and Wealth Adviser at CI Brightworth, a fee-only wealth management firm with offices in Atlanta and Charlotte, N.C. He works with high net worth families in the areas of investment management, retirement transition and estate planning. With over 20 years of portfolio management experience, Mike is a Chartered Financial Analyst® (CFA) Charterholder and serves on CI Brightworth's Investment Committee. He received his Bachelor of Science in Finance from Auburn University.
-
Stock Market Today: Dow's Winning Streak Hits Seven Straight Days
The main indexes rose Thursday as higher-than-expected weekly jobless claims boosted rate-cut expectations.
By Karee Venema Published
-
36 Great Mother's Day Deals
Shop early and honor mothers everywhere with great deals from Walmart, Amazon, Etsy, Applebee's, Pandora and oh, so many more.
By Kathryn Pomroy Published
-
Guide to Military Benefits for Retirement, Pay and Savings
Benefits for those who serve in the U.S. military can sometimes be complex and confusing. Here’s what to know about how to optimize some of them.
By Zach Mindel Published
-
A Donor-Advised Fund Can Give Your Charitable Giving a Boost
Save on taxes and donate more to your favorite charities by using a donor-advised fund, or DAF. Here’s how to maximize your giving with this strategic approach.
By Samuel V. Gaeta, CFP® Published
-
How Will the 2024 Election Impact Your Retirement?
Investors should expect volatility but also try not to overreact to news. To prepare, focus now on tax minimization, protecting your portfolio and more.
By Barry H. Spencer, Registered Investment Adviser Published
-
How Women Can Increase Odds of Saving Enough for Retirement
Pursuing financial literacy and taking advantage of savings opportunities, such as employer-offered 401(k)s, can give women saving for retirement a leg up.
By Jay Dorso Published
-
The (R)evolution of Retirement Income Planning
With AI on the horizon to enable the optimization of retirement income plan choices, the retirement fortunes of retirees are about to improve.
By Jerry Golden, Investment Adviser Representative Published
-
Five Steps to Sorting Out Your Asset Allocation
Investing decisions can be daunting, but following this five-step process can make it easier to figure out how to allocate your investments.
By Carol A. Bogosian, ASA Published
-
I Asked an Unresponsive Lawyer if He Was OK, and He Woke Up
A previous article struck a chord with readers internationally — and lawyers — and the advice we shared has worked well.
By H. Dennis Beaver, Esq. Published
-
How You Can Tackle Health Care Costs in Retirement
Doctor visits and medications are only part of the challenge of health care costs — there’s also long-term care planning. Here’s what you can do.
By Joel V. Russo, LUTCF Published