By LouAnn Schulfer, AWMA®, AIF®
Accredited Wealth Management AdvisorSM
Accredited Investment Fiduciary®
As we’ve been talking with our clients and prospective clients who’ve reached out to us recently during this bear market decline, we’ve been discussing our expectations for portfolios. One of the “you’re right but not quite” recurring conversations we’ve had is how to position one’s investments. For those who manage their own money, such as in their 401(k) or elsewhere, we’ve heard sentiment that they are just going to leave things as is until the market and their investments recover.
The “you’re right” part that we agree with, is to maintain the equity exposure in your portfolio that you’d determined to be right for you. In other words, if you are a 70/30 investor, with 70% of your portfolio invested in equities, keep it that way. It would be a mistake in my opinion for most investors to sell off their equities and increase their more conservative exposure, as the short-term timing of when to get back in the market is difficult. Upswings are often swift and can be easily missed. When you hear someone who “lost so much money” in 2008, this is likely what happened. In fear or misguidance, they sold low and missed the upswings.
The “but not quite” part is what do to with that equity allocation. The market leaders of the last bull run (a market increasing in value) are unlikely to be the market leaders of the next one. Furthermore, the biggest losers in the bear market decline are unlikely to be the biggest winners coming out of the market downturn. Think back over the past 25 years. Technology stocks massively outperformed others relative to the S&P 500 in the late 1990’s. Then through 2002, tech stocks were some of the biggest losers. That sector went relatively dormant for years before the market sorted out the next winners in the technology sector. The financial sector underperformed in the late 1990’s, and dominated in the mid-2000’s before losing serious value in the 2008 downturn. Financials remained relatively quiet for the next ten years.
Whether specific stocks of individual companies, sectors of markets such as technology or financials, or classification such as value versus growth, one thing is highly expected: we are likely to see change coming forth in what will be the next market leaders.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.