As 2024 is an election year, we are beginning to receive the question, “What actions should I take today to safeguard my portfolio?” We ask, “Save it from what, exactly?” While uncertainty creates volatility, the stock market is inherently unpredictable, as no one knows what the next few years will bring. Adding more perplexity with economic conditions and tense global politics can make for a bumpy ride; however, there is no direct correlation between an elected administration and how the market will respond.
We currently have a frontrunner on one side who was once President, and we have an incumbent President. We’ve seen what they both are capable of, and we have seen deficit spending increase on both sides, so it is feasible we could see higher taxes. Regardless of what the media says or what you think may happen, no one knows what the next four years will look like.
No matter the outlook, our advice remains the same. Volatile market conditions are not the time to make radical portfolio changes. Make sure you have what you need for spending within the next 10 years in fixed-income investments held to maturity. By holding your fixed-income investments until maturity, you know exactly what they are worth, so you are not as affected by interest rate and bond price fluctuations. The inherent volatility of the stock market is why we have the Ten Year Rule, as the goal is to eliminate the need to sell stocks during a down market. By having 10 years of spending needs protected, an investor should be able to wait out a downturn before selling equity investments.
Money you do not need within the next 10 years should remain invested in the stock market for growth. Some investors will still ask why they should have so much exposure to growth investments like stocks. We believe investors should be positioned for growth because the economy can change quickly, or the market may act irrationally and continue to go up despite obvious contrary economic conditions. If the economy does experience tough times, investors must remember that it is not one-for-one on the downside. Investment losses and gains have an asymmetric relationship. A portfolio needs excessive returns in some years to recover from larger losses.
Market downturns are not rare events, and most investors will experience at least a few during their lifetime. However, if you have protected your spending for 10 years, you should be fine. Just because you are “staying the course” doesn’t mean you cannot make tactical moves in your portfolio to take advantage of strong market sectors during economic cycle shifts. You may consider weighting your portfolio with more defensive sectors such as Health Care or Consumer Staples, those less affected by hyperinflation.
Our advice is to stick to your plan, which should be built to adapt as changes occur. With bonds maintaining a decent interest rate, now is a good time to ensure you have your 10-year money squared away. Above all, do not cash out long-term investments during a market meltdown or moments of high volatility like the current environment. You never realize a loss until you sell the position.
If you have questions on how to implement the Henssler Ten Year Rule into your financial plan, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the February 3, 2024 “Henssler Money Talks” episode.
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.
