What To Do When the Market is Up
For the past several years, there have been headlines aplenty all focused on the same thing: the imminent market downturn. Despite all the dire predictions, the market doesn’t seem to care what everyone thinks. It just keeps going up and up.
Record Breaking Highs
In March, the Dow closed above 21,000 for the first time, and in May, the S&P 500 finally broke the 2,400 mark. As you can see from the following graphs, the markets are soaring these days.
Summer is traditionally a soft season for stocks, yet they continue to trade at or near record highs. Even volatility has calmed, and the markets appear to be ignoring the political arena for the most part.3
These record highs are what have led to a glut of advice on market downturns. Yes, the markets will slow down eventually, but they haven’t yet. So, store up that advice for the future and focus on what will help you in the present. What should you do when the market is up?
Rebalance Your Portfolio
With the markets performing as they have been lately, chances are your asset allocation has gotten a little off kilter. The high returns that parts of your portfolio are generating are shifting your portfolio off balance, with some investments growing much faster than others.
Though it may seem counterintuitive to sell off your winners, rebalancing is a wise and proven investment strategy. You need to rebalance your portfolio by selling some of your overachievers to purchase underperformers. This will keep your portfolio from having more risk than you are comfortable with. What was once only 10% of your portfolio can easily grow to 20% or 30% in a bull market like this. Readjustments may be necessary.
Don’t Get Greedy
Fight the human tendency toward greed. As we’ve already mentioned, high returns can be very enticing. Running after them, though, can lead you to a dangerous place!
Make a conscious effort to avoid the hype and stick to your investment plan and corresponding asset allocation. Remember the risk tolerance level that you established for yourself. If you’re unsure how much risk you are prepared to take, sit down with your advisor to determine your unique risk level.
Don’t let record highs tempt you into making poor decisions. Remember, the investments that shoot up are usually the ones that drop the lowest when the markets go down. By avoiding greed and rebalancing your portfolio, you will put yourself in the best position in the case of a market downturn.
Be Prepared for A Correction
The pundits are right that the markets will correct themselves. While this will happen eventually, it’s impossible to predict the exact timing. It is important to recognize the reality of market cycles and prepare for the inevitable downturn.
Your portfolio isn’t the only thing you need to prepare for a bear market, though. You need to prepare yourself mentally. When the market goes up for as long as it has been, it’s easy to start taking it for granted and expect it to continue. Many people are caught off guard during market corrections and let fear and anxiety take over.
Don’t let your emotions get the best of you. As long as you are following sound investment principles, only investing long-term money, and keeping your assets within your risk tolerance, you should have no reason to panic. Yes, things may drop momentarily, but you can keep worry at bay knowing that you are in it for the long haul.
How We Can Help
If you’re not feeling as confident as I am, maybe you could use a portfolio review. We can help you create tailored financial strategies and find peace of mind despite the ups and downs of the market roller coaster. Schedule a meeting so we can show you how to take advantage of this great bull market while staying prepared for the next bear market. Contact us at (703) 584-2700.
About Washington Wealth Advisors
Washington Wealth Advisors is an independent registered investment advisory firm serving high net worth families and small businesses. We are a fiduciary to our clients. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.