Now a four-year market rally, but the lessons are still relevant.
• The turning point is not always obvious. In hindsight, it seems like it should have been dead obvious that stocks were cheap four years ago. But, because of their inability to clearly identify market bottoms, investors may be better off sticking with a strategic asset-allocation plan.
• Don’t let past performance control your portfolio. To the extent that you can, let your strategic asset-allocation framework be a key driver of where you deploy new cash.
• To help maximize participation, make a little room for the risky stuff. Even though higher-quality stocks tend to hold up better during downturns, the opposite tends to be true during recoveries. Investors may want to maintain exposure to both types of companies: high-quality, wide-moat dividend payers and economically sensitive small- and mid-caps.
• But there are also chicken ways to play. You don’t need to pile on the risk to generate robust gains in absolute terms. Investors who have shorter time horizons or are simply more comfortable with lower-risk stocks can reasonably allocate more toward such stocks without completely ceding their upside potential.
• There will be bumps (and buying opportunities) along the way. The movement hasn’t always been upward since the market bottomed. If your portfolio is light on stocks at the outset of a rally, periodic sell-offs may provide opportunities even at a later time.
Diversification and asset allocation do not eliminate the risk of investment losses. Stocks are not guaranteed and have been more volatile than other asset classes. Small stocks are more volatile than large stocks, are subject to significant price fluctuations and business risks, and are thinly traded. We can help you determine an appropriate amount of risk, as well as monitor your investments with a proven, unbiased process. Please come see me at City State Bank or call me at (515)986-2265 to set up a meeting.
Not FDIC Insured, not a bank deposit or product, not guaranteed by bank, may lose value and is subject to investment risk including possible loss of principal.
Information provided by Wade Lawrence, City State Bank, 100 N.E. Jacob St., Grimes, 986-2265.