The U.S. stock market has been tearing upward for over 8 years. The last 8 months, the stock market has been climbing at an even steeper rate. Meanwhile, interest rates have been trending downward for over 8 years, pushing bond prices ever higher.
Have you been riding these trends upward to grow your investment accounts, or sitting on the sidelines? Have you been scaling back, taking some profits, and re-adjusting because you know it cannot go on forever?
There will be a day in the future when these bull markets will stall or fall. Will you know exactly what action to take, or will you be like a deer in headlights when the stock market falls 5% in one day; or falls 20% over a few weeks. Or if interest rates will jump up to a higher level within a week, will you know what to do? Or like many, will you ride this trend up and then helplessly ride it all the way back down?
This moment, right now, is the time to prepare your mind and emotions for what are logical and prudent actions regarding your investment portfolio. Think about them, write them out, and get expert advice from different sources that are aligned with your risk tolerance. Do this so you will be fully prepared for however the financial markets unfold. When the day arrives and stocks and bonds are falling, you will know exactly what to do while most everyone else panics.
What are a few possibilities?
- Sell some now to have cash available to buy cheaper later on.
- Place stop-loss orders to prevent catastrophic losses.
- Have some candidates ready that will increase in value as the markets move down.
There are more sophisticated tactics for defensive positions, however they must fit your capability, interest, and investment goals. The critical element is to have an investing plan for whatever the financial markets may do. Even if you are a buy-and-hold investor, is there a pain point where you stop the losses – say -25% before it becomes a -40% loss like in 2008? Have an investing plan and be ready to execute it; whether markets are moving calmly or swinging violently.