Things to do now that the markets have calmed to make sure your portfolio and investments are ready for an extended market rebound, another downturn, extended COVID Quarantine, or a 2nd wave.
The markets have calmed, and the S&P has rebounded, and some companies are back to their highs while others are not. Did you take advantage of the market when it lowered? Make sure you are prepared for whatever is next.
First thing is to determine what kind of investor you are:
- Believe in strategic investing – have your percentages and stick to it. For example, you are 70% stocks/30% bonds with a traditional allocation. We call that lazy asset management.
- Passive Do-It-Yourself (DIY) – I like index funds. There are pros and cons to that strategy. Given the S&P 500 has about 100 companies below investment grade, globally we don’t know how things are going to work out, do you really feel that buying the market is going to position you best for future?
- Stock Picker DIY – You want to have your finger on the pulse. When markets shift, you can anticipate why and what to do with your stocks. You know why you are invested in each company, when to buy more, and when to get out. You are emotionally detached from your picks and understand that variables sometimes change and you need to take your loss/gain and move on.
- Rely on pros – You have a team that understands when you need money and how much, how to invest your money, and help you to be tax efficient by not using only mutual funds, tax loss harvesting, and distribution planning for retirement. I know the right questions to ask, and when I don’t, I feel like my pro is always educating me
What you need to know
Here are the 5 questions that will help define your investment strategy
- Do you think the rebound in the market is:
- V Shaped – meaning we hit the bottom and we will head back up quickly
- W Shaped – meaning we hit a bottom but will test lows again
- U Shaped – We hit a bottom and will slowly move up from here
- L Shaped – we have already bounced back, so an L Shape is no longer an option under current conditions
Draw that shape here and identify to yourself where you think we are
- How do you want to invest your portfolio from here?
- Continue to stay diversified – I believe in lazy investment management
- Index Funds – I want to pick just the indices or industries that I have faith in
- Individual Stocks and Bonds – I have my finger on the pulse, I am active, I want to pick good companies
- I rely on a pro or want to find a pro to rely on
- If you are tactically investing, meaning you have an opinion on where you will find value to position yourself better in the market, then where do you feel the opportunities lie and on a scale of 1-10, how confident are you on this?
Also keep in mind if you are investing for growth, income, or both (blend). That will help you to narrow down where and how you should be invested. Think of when you will need any of the money. I will typically break it down into what you need within a year (short term), within 5 years (mid term), or what you need in 5 years and longer (long term). You want to treat your short term money differently than your mid, which will also be different from your long term. Take taxes into consideration as well. If you are in a taxable account versus a tax deferred or tax free, you will want to allocate your portfolio accordingly.
Lastly, think about how social norms will change, or have changed. What will benefit from that? What has impacted the markets recently that could happen again?
- Large Cap US Domestic (Growth, Value or Blend) _________
- Mid Cap US Domestic(Growth, Value or Blend) _________
- Small Cap US Domestic(Growth, Value or Blend) _________
- US Core Bonds _________
- US Floating Rate Bonds _________
- US High Yield Bonds _________
- US Municipal Bonds _________
- US Municipal High Yield _________
- International _________
- Developed Europe _________
- Emerging Markets (All, Latin America, or Asia) _________
- International Bonds _________
- Emerging Market Bonds _________
- Crypto Currencies _________
- Currency Trades _________
- What Sectors do you think will do best in the market rebound you selected in question 1?
Sectors react differently to changing economic factors. Think about how you feel the market will react and that should guide you in your weightings. If you are unsure of how this works, contact us to go through the economics of portfolio creation.
Sector S&P Weighting as of 12/31/19 Your Weighting
- Materials 2.66% ______
- Real Estate 2.93% ______
- Energy 4.35% ______
- Utilities 3.32% ______
- Financials 12.94% ______
- Communications 10.39% ______
- Consumer Staples 7.21% ______
- Consumer Discretionary 9.75% ______
- Industrials 9.05 ______
- Information Technology 23.20% ______
- Health Care 14.2% ______
- Matching the size of the company (Small, Mid and Large Cap) to the Sector, are there any industries that you have faith in or individual companies that you believe will outperform their peers? What are you using as basis for your research? Stay consistent.
Think about how those companies will fare in the market rebound you are expecting, but ones that will be a sound investing if your assumptions are incorrect. Remember, if you invest in the companies ability to create profit, then those companies should fare well in the long term. Always know where your companies rank versus the competition
Now create your portfolio based on the percentages you feel you should allocate to your portfolio. Refer back to question 2 for the bones of your strategy. Take away the sectors that may not be applicable. Then drill down to how you are going to invest for each.
Keep your list in a tracking tool such as Yahoo Finance of the companies you are invested in, and a separate portfolio of companies you have interest in (your Bench list).
Track them to see how your progress is going. If you hit your price targets, look to your bench list for more opportunities. If you have any questions, please reach out to us
Disclaimer: This questionnaire meant to be a guide and in no way should be misinterpreted as advice. Individual investors can lose money when having no experience or understanding of economic variables and their impacts to their investments, company valuation or tax strategies. Green Ridge Wealth Planning does not recommend that you do this on your own if you have no experience in investing. Consult your professionals regarding consequences of certain investments and potential tax repercussions you may have from owning or selling certain investments.