Experts urge taking the recent stock-market volatility in stride, but there are steps you can take if you're worried about further declines.
“If you don’t need that money in the next couple of years, you shouldn’t worry about this,” Tom Fredrickson, a certified financial planner in Brooklyn, N.Y., recently told Consumer Reports.
“Anyone who has been in the market has already made a lot of money—look at how much the stock market has been up this year, and over the past 10 years. A couple of percent decline is just a blip,” he said.
“If you do the need money, or you can’t sleep at night, you should rethink whether you need so much of your money in the stock market,” he says. “Then you may want to tap some of your gains and put more in bonds and cash.”
Here are five investment strategies to consider:
1. Review Your Asset Mix
Chances are you haven’t updated your portfolio allocations lately. Few 401(k) investors make any changes after signing up, CR reported. William Bernstein, an investment adviser and author of “The Four Pillars of Investing,” told CR that instead of a 70/30 stock-and-bond mix, opt for a 60/40 or 50/50 allocation instead in a bid to halt losses.
2. Rebalance Your Portfolio
Investment firm Vanguard explains that someone who started in 2012 with a 60/40 stock-and-bond mix and failed to rebalance would have a 76/24 mix today, as a result of the big gains in stocks and modest returns on bonds. Jim MacKay, a financial planner in Springfield, Mo., said such a way to rebalance is to sell just enough of your winning investments and add that money to your stragglers to improve your portfolio.
3. Diversify Overseas
“Most investors have on blinders and only buy domestic stocks and avoid foreign stocks,” says Rob Arnott, founder and chairman of the investment firm Research Affiliates. The U.S. accounts for only about 53 percent of the global stock market. That’s why you should consider stashing a portion of your equity stake in overseas stocks, Consumer Reports explains.
4. Focus on High-Quality Bonds
Stay with high-quality bonds, such as those that hold investment-grade and government issues. Vanguard analysis shows that lately investors have been flocking to lower-credit-quality issues, such as junk or below-investment-grade bonds, which may pay higher yields.
5. Step Up Your Saving
To make sure you save more, automate your contributions, starting with your 401(k) plan, and try to put away the max, which is $18,500 in 2018. (Those 50 and older can put away an additional $6,000.) . CR also suggests "raising your contribution rate another percentage point or 2 for now and aim to increase it more in the future."
To be sure, volatility seems destined to haunt investors for the near future.
Meanwhile, U.S. companies posting strong earnings are still winning laurels from investors, even amid the broad stock sell-off over the last week, suggesting that the kind of indiscriminate selling seen the last time an apparent devaluation of China’s yuan spooked global markets is far from imminent, Reuters reported.
Still, portfolio managers and strategists say that although the S&P 500 posted its worst day of the year on Monday, the market continues to reward companies that have strong fundamentals.
“There are fewer clear winning growth companies and in large cap there are fewer really attractive consumer names than a few years ago,” said Barbara Miller, a portfolio manager at Federated Investors. “The companies that are stronger fundamentally are pulling forward a little bit if they are in categories with any macro volatility.”
Katie Nixon, chief investment officer at Northern Trust Wealth Management, described the market as “stick-to-what’s-working,” saying that “we’re nowhere near a capitulation.
“If we get any sort of trade truce talk you could see the market rip from here and go up to its previous highs,” Nixon said.
Overall, companies are weathering the market sell-off roughly in proportion to their corporate results. Among the companies that have posted earnings since the S&P 500 touched its record high on July 26, the share prices of those that beat earnings estimates by 30 percent or more are down only 3 percent on average, while companies that missed expectations are down 7 percent on average, according to Refinitiv data.
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