Investing can be difficult, especially when deciding how to navigate the stock market’s ups and downs. After the downside experienced in 2022, the recent upside move has been a welcomed relief. However, data suggests the market may be due for a break soon.
Let’s dive into how this may affect you and the steps you can take to navigate the current market environment.
Recent Market Performance:
In 2022, the market suffered an 18.5% downturn, followed by a rebound of 26.3% in 2023. The strong momentum continued into 2024, with the broader market reaching approximately a 7% gain through mid-March. Remarkably, the market has soared over 20% in just the past five months.
Now, despite this recent positive move, it’s important to remember that the markets don’t typically move that far this fast and, as a result, often experience short-term corrections. 5-10% corrections are a natural part of market cycles and should not be a cause of panic for investors. In fact, these short-term market pullbacks are actually a healthy part of a functioning market and help to rebalance overextended valuations.
The Gameplan:
Although there is no guarantee of what will happen in the near future, the whispers of potential market correction are growing louder. Beginning to prepare for market changes now may help provide stronger financial peace of mind.
The following steps can serve as guidance in preparing your portfolio for the potential correction:
- Rebalance Your Portfolio: Regularly reassessing and adjusting your portfolio can help maintain a balanced and diversified investment strategy. When evaluating your portfolio, consider selling assets that have become overweight and reinvesting in underperforming areas. This process of rebalancing can help create a well-structured and resilient portfolio.
- Retirees: A market correction can be particularly concerning for retirees. To mitigate risks, focus on securing your short-term cash flow need in cash/cash equivalent assets that provide safety, but reasonable interest, until funds are needed. Additionally, ensure your portfolio is well balanced between income-generating assets such as dividend-paying stocks and/or bonds. This approach can help reduce portfolio volatility while ensuring a reliable income stream.
- Do Not Make Big Bets: In times of uncertainty, the temptation to make bold moves can be strong. However, exercising caution is crucial. Avoid making significant bets or drastic changes to your investment strategy. If you’re not confident in your investment strategy, it may be time to engage a Certified Financial Planner™.
In conclusion, the stock market’s recent performance, coupled with the historical inevitability of corrections, calls for a thoughtful approach to your investment portfolio. Portfolio rebalancing, securing short-term cash flow needs, and avoiding impulsive decisions can help you navigate the potential challenges ahead.
If you have questions or want guidance with your financial strategy, contact a Certified Financial Planner™. Through our unique and comprehensive process, our team at The Welch Group can help you achieve your financial and retirement goals. Call us at 205-879-5001 to schedule an introductory phone call to learn if we are the right fit for you.
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Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
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