3 Actions to Take with Your Investments: Revisited

RONALD S. PHILLIPS

Author of two books, teacher & trusted columnist

a weak economy, we’re back to the markets actually dropping occasionally. The big question, though, is what will investors do and what will you do during these times?

The markets have halted their nearnine year “super bull” run. Yet stocks, before Russia-Ukraine, started experiencing volatility and weakness and even (gasp) down days. Before the last year no amount of what’s normally bad news could derail this ride! It was extraordinary. Now, especially with international problems, domestic inflation, rising rates, and

The record-breaking returns started about a decade ago. We’ve made lots and lots of money. Why did we make big gobs of dough? In my opinion, there’s an unwritten understanding between investors and the markets. The market welcomes us on its rollercoaster ride and we agree to fasten-up and hang on tight until the ride stops. This ride is ownership in the capitalist system of profits and growth.

The last nine years the rollercoaster was an absolute kiddie ride with barely a move down. Even the bear market (remember those?) was barely a month long. A bear market! We’ve been riding steadily up and it’s easy to get comfortable and forget our agreement with the market: stay on the ride.

Or we can buy bonds and get decent returns and income. But how would we feel getting five percent for the year and someone’s stock is up 43 percent? Most folks wouldn’t have been happy with all bonds during this great market. We would have heard and seen our family and friends making buckets full of money. That’s out, too.

So being in the equity markets is important and, arguably, very essential, even for retirees.

The short answer is “yes.” In some way, most investors should be in the markets. Even more so now that we have rampant inflation. Stocks and real estate have historically been great at keeping up with inflation. But there are many ways to play this ride.

During a bull market growth leads the way. Things like tech, smaller companies, emerging markets and technologies, and more aggressive sectors tend to do well and even really well, often outperforming the market in general.

As things get tough different stock areas and different countries can take the lead.

The short answer is “yes.” There’re many things to change:

1.It’s smart to sell gains that you’ve experienced up until now. We don’t want to let the rollercoaster take away our money. If you’re sitting on profits, you might want to sell the gains and even keep the underlying investment for possible future growth.

2.For your stock exposure consider shifting a good chunk from growth to value. Things like consumer staples (think groceries and utilities), high-dividend stocks or funds, undervalued areas and sectors. This takes some research and thinking but it’s a known cycle. Growth switches with value as the leader in returns. Growth has had a long run and maybe value is up next. At least you should get higher income, which can offset volatility and downturns.

In general, we should all seek higher-then-average income from our investments. This can provide needed income, create a larger cash position over time for your portfolio, and help manage risk.

3. The third course is “safety soup.” Yes, a corny name, but maybe useful. I’ve “seen the light”…of very boring government bonds. In the past I barely recommended this asset class. But now I see the worth of U.S. Treasuries to potentially hold value in downturns. It’s not a guarantee that T-bonds and bills will go up when stock markets go down but it happens A LOT of the time.

With Fed rates still rising pay close attention to your bond maturities. This will need to be adjusted as the Fed rate moves or stops. Ask an expert if you’re not sure.

In the depths of the 2009 bear market, when the S&P 500 dropped almost in half (!) some of these Treasury funds were not just holding value but were up 30, 40 percent or more. In the recent 2020 bear market, and the past few months, these and similarly conservative investments held strong and even went up.

The “safety soup” part is just my mixture of various bonds. Maybe it’s some inflation bonds, short- and long-range T-bonds, and a few other ingredients. But this mix is now anywhere from 15 to 25 percent of client portfolios.

Again, no guarantees but these changes and pivots could help you smooth out the rollercoaster ride.

This article is for illustrative purposes only. Ron is not recommending any investment security for you but just trying to educate the community. INVESTMENTS CAN AND DO DROP IN VALUE; THEY HAVE NO BANK OR OTHER GUARANTEE. He is licensed and regulated by the great State of Colorado.

Ron Phillips is The Investment INCOME Advisor, a Pueblo, CO native, and an independent business owner. Order a free copy of his book Investing To Win by leaving a message at (719) 2203005. Visit RetireIQ. com or email RonPhillipsAdvisor@ gmail.com