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Stocks have been on a tear for the past two years, with the S&P 500 rising about 60 percent, as investors cheered cooling inflation, the rise of artificial intelligence and the absence of an economic recession. But the rise in stocks puts major indexes at lofty valuations, leaving long-term investors wondering how they should proceed from here.
Bankrate’s Third-Quarter Market Mavens Survey asked market professionals what, if anything, long-term investors should do with their portfolios as stocks trade near all-time highs. Here’s what they had to say.
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s Third-Quarter 2024 Market Mavens Survey:
Portfolio rebalancing: Why now may be a good time to adjust allocations
With stocks near all-time highs, there’s a good chance that there have been some shifts in investors’ portfolio allocations over the past few years. The investment pros surveyed by Bankrate think now is a good time to review those allocations.
“If investors only do one thing, they should rebalance portfolios back to their targeted allocations,” says Chris Fasciano, senior portfolio manager at Commonwealth Financial Network.
Wells Fargo Investment Institute Senior Global Market Strategist Sameer Samana also says now is a good time to review your overall portfolio. “Update your financial plan, and rebalance in-line with the plan’s recommended allocations,” he says.
Maintain portfolio diversification
Portfolio rebalancing and diversification go hand in hand. A key reason for portfolio rebalancing is to make sure your portfolio stays diversified and doesn’t have too much or too little exposure to any one asset class.
“For long-term investors, holding well-diversified portfolios, or broad market indices, is generally a winning strategy,” says Dec Mullarkey, managing director at SLC Management.
“While markets can seem over valued at different points, some companies will deliver the expected strong growth while others fail but leave market share for new competitors,” Mullarkey says. “So, sticking with well-diversified portfolios and periodically rebalancing to your long-term asset mix targets, tends to be a reliable formula to capture stable long-term performance.”
Look to reduce risk in your portfolio
With stocks at highs, some of the experts surveyed expressed a more cautious tone and suggested investors pay close attention to any holdings that may be particularly risky.
“With valuations stretched, investors need to be more discerning with their investment decisions,” says Patrick J. O’Hare, chief market analyst at Briefing.com. “They also need to be more attentive to risk management given that many stocks, particularly in the tech sector/AI space, have made huge moves.”
O’Hare says investors should reallocate funds from positions that have grown in weight toward investments with better opportunities for long-term growth. One of those opportunities could be dividend stocks.
“With interest rates expected to come down, the fortunes for dividend-paying stocks should be turning up,” O’Hare added. “There is always a place for dividend-paying stocks in a balanced portfolio looking to lower volatility and enhance total return potential.”
Methodology
Bankrate’s third-quarter 2024 survey of stock market professionals was conducted Sept. 20-27 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Dec Mullarkey, managing director, investment strategy and asset allocation, SLC Management; Marilyn Cohen, CEO, Envision Capital Management, Inc.; Patrick J. O’Hare, chief market analyst, Briefing.com; Robert Brusca, chief economist, FAO Economics; Chuck Carlson, CFA, CEO, Horizon Investment Services; Michael K. Farr, president and CEO, Farr, Miller & Washington; Kenneth Tower, CEO and chief investment strategist, Quantitative Analysis Service, Inc.; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Sam Stovall, chief investment strategist, CFRA Research; Chris Fasciano, senior portfolio manager, Commonwealth Financial Network; Hugh Johnson, chairman and chief economist, Hugh Johnson Economics.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
