Investors watching the market's wild swings over the past week may well be wondering what--if anything--they should do about their portfolios.
While market pros advise against making any major changes right away, they say now is a good time to start adjusting your investments.
Because stocks are likely to see further declines, they say you should avoid putting any new money in the market for now. Instead, start shifting your existing investments to make sure you're well diversified.
“Stocks are expensive," says Ty Nutt, large cap value portfolio manager for Delaware Investments in Philadelphia. "It would be healthy if we had a corrective phase and got more reasonable valuations. When that happens, we’ll be looking for bargains, but we’re not there yet.”
The market downdraft underscores the importance of diversifying your portfolio. You can reduce risk by distributing your investments among different markets, sectors, industries and stocks, bonds and certificates of deposit. This will protect the value of your entire portfolio against a drop in a single security, sector or market downturn.
Your grandmother said it best: Don’t put all your eggs in one basket. How your assets are invested among different classes may be more important than the individual stocks and bonds you hold.
"We urge people to be disciplined and take their emotions out of the market,” says Warren Pierson, senior portfolio manager with Baird Funds in Milwaukee. “We think that’s how investors win in the long run. Asset allocation gives you both an anchor and a rudder and is a good way of winning the investment marathon.”
So what sectors should you look at right now?
Delaware Investments' Nutt likes selected stocks in technology, healthcare and financials. The prospect of weaker retail spending has soured many investors on consumer discretionary stocks, but Nutt is keeping an eye on specialty retailers, and even autos and homebuilders for possible purchase in the future.