Investors worry. It’s just what they do. No one wants to lose money, so any catalyst that could negatively affect the market is a source of worry. The market has recovered most of what it lost in March, so should investors sell now? How do investors position their portfolio for a potential change in presidential administrations? If all the economic news is bad, why is the market doing well?

I often joke that the answer is, “it depends;” however, this time, the answer to all these questions can be answered by the Ten Year Rule. I work very hard to not look at market conditions when it comes to making buy or sell decisions. I recommend investors first set aside the money needed to cover their spending for the next 10 years, suggesting that they place these funds in fixed-income investments that mature at dates corresponding to their liquidity needs. I propose following this rule so that investors are not forced to sell stocks to generate cash to live on when the market is down.

Buy and sell strategies should be driven by the individual stocks’ fundamentals. I look at financial strength and safety rankings, trade volume, sector analysis, valuations, dividend history, among many other criteria. However, investors will see that I do recommend portfolio positions that will benefit from the current economic climate. These are tactical moves to take advantage of market trends — not timing the market. I may choose an overweight position in the Consumer Staples sector during turbulent market times, as I know people will keep buying food and personal care products no matter the economic conditions. I do not try to guess when a Consumer Staple stock is at its highest value so I can sell before it goes down.

Furthermore, the Ten Year Rule strategy spans two and a half presidential administrations. Who the president is shouldn’t matter because your financial plan is based on your needs and situation — not whether the market is going up or down or if a Democrat or Republican is in office. Ideally, your plan is established based on your spending needs, then you implement that plan and maintain the course through the election cycles. A volatile market is an inappropriate time to turn your portfolio inside out.

As for a strong market with a poor economic environment — I believe it is likely because of the government’s stimulus to counteract the economic impact of the coronavirus. Many taxpayers received their Economic Impact Payment around the same time they received any tax refund they were due. The government is still working through delivering Economic Impact Payments, so many taxpayers still have a windfall coming. Additionally, workers who were unemployed or furloughed also started receiving an extra $600 in addition to their weekly unemployment benefits. This influx of cash leads people to spend. The consumer feels good right now, despite the high unemployment numbers. This will likely change when unemployment benefits are depleted, or if a second wave of the coronavirus causes more closures. No one can predict what the change may be.

With such uncertainty, I recommend investors rebalance their portfolio. The rally from March until now was not even across the board. Many investors still have gains that they may be able to offset with tax-loss harvesting. While I do not recommend timing the market by selling all of your stocks now that they have recovered, I do recommend that investors make tactical moves like rebalancing, tax-loss harvesting, and ensuring their portfolios perform in a manner that reflects their risk tolerance.

Support Local Journalism

Now, more than ever, residents need trustworthy reporting—but good journalism isn’t free. Please support us by purchasing a digital subscription. Your subscription will allow you unlimited access to important local news stories. Our mission is to keep our community informed and we appreciate your support.

William G. Lako, Jr., CFP®, is an Executive in Residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial and a co-host on Atlanta’s longest running, most respected financial talk radio show “Money Talks” airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.


(0) comments

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.