What should you do about the market slump?
The US stock market had its worst day in two years on Friday, triggering Asian and European markets to sell off too--what should investors do?
Jeremy Glaser: The robust wage growth in today's jobs report has sparked inflation and rate fears. This has sent stocks sharply lower and yields on the 10-year Treasury to the highest level in four years. This pullback might not come as a complete surprise, given the robust equity rally we've had through 2017 and into 2018, but it's still uncomfortable to see so much red in your portfolio.
So, what should investors do about it? We think there's five things to keep in mind. First is to check up on your asset allocation, the mix between stocks and bonds. Given that equity rally, chances are you're holding more stock than you may want to and more than fits into your risk capacity. This is something that's definitely worth taking a step back and looking at.
Second, we think investors should check their liquid reserves. For retirees, that means having enough cash on hand to cover your living expenses. For others, it means potentially having some cash to take advantage of opportunities. Now, we don't think that this sell off today had created large opportunities in the marketplace. We still see stocks as broadly overvalued, but if there were to be further weakness, it might be nice to have some dry powder.
Third, this could be an opportune time to really think about your sub-allocations within your equity holdings. The way that this rally has played out, you may find that you're holding many more technology stocks than you expected or you'd like to. This could be a time to rebalance even within your equity holdings.
Fourth, investors should check up other fixed-income holdings and make sure that they really are providing that high-quality ballast that you want in your portfolio. Even in a rising environment, we still think there's a place for those high-quality bonds within a portfolio, for the important diversification benefits that they provide. But investors who may be looking for yields, bought into high yields or other categories, may find that they don't quite provide those benefits that they want. This could be a good time to check in on that.
Finally, we think investors shouldn't spend a lot of time worrying about things that they don't have control over, like where the market's going to go in the short term. Instead, they should focus on the parts of the portfolio they do control, like how much they're paying for their investments, their asset allocation, their contribution rates, and making sure they have a sensible withdrawal plan.