The recent selloff in the major averages has raised concerns among investors, as the S & P 500 dropped over 1% on Monday afternoon. The increase in the CBOE Volatility Index, known as the market’s fear gauge, indicates a heightened level of uncertainty in the market. Several factors, including the escalating conflict in the Middle East, climbing oil prices, and persistent inflation, have contributed to the recent volatility. Experts suggest that these turbulent times may lead to increased capital-market volatility in the future.
One of the key strategies for managing your portfolio during periods of high volatility is to rebalance your asset allocation. The sharp run-up in stocks over the past year may have skewed your portfolio towards equities, leading to increased risk. Rebalancing involves adjusting your portfolio’s weightings to align with your time horizon and risk appetite. Financial advisors recommend reviewing your portfolio at least once a year and making necessary adjustments. Consider trimming your exposure to expensive sectors like Information Technology and Communications Services, and reallocating your assets to sectors like industrials, materials, energy, and health care.
When selling assets during periods of market volatility, it is important to do so strategically. Tax-loss harvesting is a technique that involves selling losing positions in your taxable account to offset realized gains within your portfolio. By being mindful of your asset allocation, you can optimize your tax benefits and maintain your market exposure. However, it is essential to avoid triggering a wash sale by purchasing similar securities within 30 days of the sale, as this could result in disallowed tax deductions.
As bond yields and prices move inversely, market conditions that result in higher yields can present income opportunities for investors. The recent surge in inflation reports has led to a reassessment of rate cut expectations, making it an opportune time to lock in attractive fixed income yields. By extending duration and investing in bonds with greater price sensitivity to rate changes, investors can capitalize on the current market environment. Consider options like the iShares 3-7 Treasury Bond ETF (IEI) and the BlackRock Flexible Income ETF (BINC) as alternatives to cash holdings.
Strategic portfolio management is crucial during times of market uncertainty and volatility. By rebalancing your portfolio, strategically selling assets, and exploring income opportunities, you can mitigate risks and capitalize on market fluctuations. It is essential to stay informed about current market conditions and seek guidance from financial experts to ensure your portfolio is well-positioned for success. Remember, a well-managed portfolio is key to achieving your long-term financial goals despite turbulent market conditions.