If you have highly appreciated positions, it may make sense to continue to ratchet up your stop loss or sell discipline to lock in gains. That way if the market does decide to change course you are protected on the downside. In addition, if you are over-allocated to certain sectors of the market this may be an excellent opportunity to lighten up into strength and rebalance your holdings.
I was having a conversation the other day with a new client who’s portfolio is all cash and we were working on a game plan to start getting new positions invested. I told him that I would start small and work into new holdings over time so that we can take advantage of any pullbacks. In addition, we talked about the need for risk management with the market at all-time highs.
As a conservative, retired investor, his biggest concern was not losing the money that he had worked so hard to accumulate over his career. However, he still has a need for income and capital appreciation which is why being 100% cash just isn’t going to cut it. We talked about putting money to work in short-term high yield, senior loans, and other areas of the bond market that are still performing quite nicely. In addition, starting out with equity holdings in low volatility ETFs such as the iShares MSCI U.S. Minimum Volatility ETF (USMV) was another core strategy we are going to implement.
The key to successfully navigating the market on its highs will be to work into positions over time and not throw the entire account in on one day. That way you mitigate the risk of a swift correction and can still achieve your long-term goals. By having a balanced strategy and strategic mindset, you can enhance your chances for success at these levels.
David Fabian is the chief operating officer at Fabian Capital Management LLC.