Investors worry. It’s just what they do. No one wants to lose money, so any catalyst that could negatively affect the market is a source of worry. The market has recovered most of what it lost in March, so should investors sell now? How do investors position their portfolio for a potential change in presidential administrations? If all the economic news is bad, why is the market doing well?
We often joke that the answer is, “it depends;” however, this time, the answer to all these questions can be answered by Henssler’s Ten Year Rule. We work very hard to not look at market conditions when it comes to buy or sell decisions. We first set aside the money you need to cover spending for the next 10 years. We place these funds in fixed-income investments that mature at dates corresponding to your liquidity needs. We do this for clients and recommend this to investors so that you are not forced to sell stocks to generate cash to live on when the market is down.
Our buy and sell strategies are driven by the individual stocks’ fundamentals. We look at financial strength and safety rankings, trade volume, sector analysis, valuations, dividend history, among many other criteria. However, clients and investors will see that we do position portfolios to benefit from the current economic climate. These are tactical moves to take advantage of market trends—not timing the market. We may choose an overweight position in the Consumer Staples sector during turbulent market times, as we know people will keep buying food and personal care products no matter the economic conditions. We do not try to guess when the Consumer Staple stock is at its highest value so we can sell before it goes down.
Furthermore, our Ten Year Rule strategy spans two and a half presidential administrations. Who the president is shouldn’t matter because your financial plan is based on your needs and situation—not whether the market is going up or down or if a Democrat or Republican is in office. Ideally, your plan is established based on your spending needs, then you implement that plan and maintain the course through the election cycles. A volatile market is an inappropriate time to turn your portfolio inside out.
As for a strong market with a poor economic environment—we believe it is likely because of the government’s stimulus to counteract the economic impact of the coronavirus. Many taxpayers received their Economic Impact Payment around the time they received any tax refund they were due. The government is still working through delivering Economic Impact Payments, so many taxpayers still have a windfall coming. Additionally, workers who were unemployed or furloughed also started receiving an extra $600 in addition to their weekly unemployment benefits. This influx of cash leads people to spend. The consumer feels good right now, despite the high unemployment numbers. This will likely change when unemployment benefits are depleted, or if a second wave of the coronavirus causes more closures. No one can predict what the change may be.
With such uncertainty, we recommend investors rebalance their portfolio. The rally from March until now was not even across the board. Many investors still have gains that they may be able to offset with tax-loss harvesting. While we do not recommend timing the market by selling all of your stocks now that they have recovered, we do recommend that investors make tactical moves like rebalancing, tax loss harvesting, and ensuring their portfolios perform in a manner that reflects their risk tolerance.
If you have questions regarding your investment portfolio, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
