Consider tactical asset allocation, which involves making modest, temporary adjustments within your investment portfolio relative to your long-term target allocation.
Dollar-cost averaging, which involves investing a portion of the cash balance into the target portfolio through regular intervals, may help to manage investment risk as the market moves up and down.
Rebalancing among asset classes with the most significant differences in return and risk, such as stocks and bonds, can enhance the potential for long-term returns and is effective at managing portfolio risk.
A challenging investment environment emerged in 2022 and persists in the first half of 2023. Throughout most of 2022, investors found few safe havens, as most major asset classes, including stocks and bonds, suffered setbacks. That’s unusual, as historically, for example, bond markets have often provided positive returns within a diversified portfolio to help offset a downturn in stocks. However, high inflation, rising interest rates and the Russia-Ukraine war all contributed to downward pressure on both bond and stock prices. In the opening months of 2023, bond and stock markets regained some of the ground lost in 2022, but the environment remains volatile. Challenges may persist in a period with elevated inflation and interest rates and the potential for slower economic growth.
“It’s important to recognize that the market environment and the underlying economy are different today from what existed prior to 2022.”
Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management
“It’s important to recognize that the market environment and the underlying economy are different today from what existed prior to 2022,” says Rob Haworth, senior investment strategy director at U.S. Bank. “With that in mind, it may be a time to consider whether a portfolio designed to meet your long-term investment plans and goals requires adjustment.”
Here are three situational approaches to consider in the current market environment:
As you seek to properly position your portfolio, consider tactical adjustments to take advantage of specific opportunities that have emerged in today’s market. These include dollar-cost averaging of your available cash to put money to work systematically over time and limit the potential downside risk of a large, lump-sum investment. And rebalancing your portfolio positions to align your asset mix with your long-term goals and risk tolerance.
Your wealth management professional can be instructive in helping you blend and select strategies to keep your portfolio on target to meet your long-term investment plans and goals through today’s challenging market environment.
The resurgence of inflation combined with rising interest rates creates challenges for investors in 2022. These tactical considerations can help you navigate today’s unique market dynamics.
Don’t let market volatility and an uncertain economic outlook derail your disciplined investing strategy.