The recent sell-off in the major averages has left many investors feeling uncertain about the future of the market. With the S & P 500 dropping more than 1% and the CBOE Volatility Index spiking, tensions are running high. The conflict in the Middle East has only added fuel to the fire, causing traders to brace for potential volatility ahead. In times like these, it is essential for investors to remain calm and rational in their decision-making.
One of the first steps investors can take in response to market volatility is to rebalance their portfolio. After a period of strong gains in the stock market, it is possible that your asset allocation is now too skewed towards equities. Rebalancing involves adjusting the weightings of different asset classes to ensure that they still align with your investment goals and risk tolerance. Financial advisors typically recommend rebalancing every quarter or at least once a year to mitigate portfolio risk.
When it comes to selling losing positions in your portfolio, it is important to do so strategically. Tax-loss harvesting is a method that involves selling underperforming assets in your taxable account and using the losses to offset gains. By being mindful of your asset allocation and the wash-sale rules, you can make informed decisions about which positions to sell. Proceeds from selling losers can then be used to purchase assets that align better with your investment objectives.
In a climate where bond yields are on the rise, investors may find opportunities to strengthen their fixed income holdings at attractive prices. Recent inflation reports have led traders to adjust their expectations for future rate cuts, making now a potentially opportune time to move out of cash and into higher-yielding assets. Extending duration by adding exposure to longer-dated bonds can help investors capitalize on the current market conditions. Fixed income options with durations of three to seven years, such as the iShares 3-7 Treasury Bond ETF and the BlackRock Flexible Income ETF, are worth considering for those looking to diversify their portfolio.
Navigating through volatile markets requires a strategic and disciplined approach. By rebalancing your portfolio, selling selectively, and exploring income opportunities, you can position yourself to weather market fluctuations and potentially capitalize on opportunities for growth. It is important to remain vigilant, stay informed about market developments, and seek guidance from financial professionals to make well-informed investment decisions.