The year is halfway over, and asset classes are performing well. The Nasdaq leads the way with a gain of 33%, followed by the S&P 500, up 12.4%, and bonds are positive. The market recovery is welcomed, especially after last year’s drubbing. The rebound is not surprising because stocks have risen approximately 80% of the time since the end of World War II. It is not a matter of if but when. However, the bigger question is how your investments are performing. Are you participating in the recovery?

Last year was brutal, and investors wanted to abandon ship and sell their investments to ride out the market storm by liquidating their portfolios and parking the funds in money markets, savings accounts, CDs, or Treasury Bills. It’s nice in theory but challenging in practice because markets move quickly. For example, most of the market declines last year occurred during the first half of 2022, and by June, stocks started the recovery process. Since last June, the Nasdaq is up 15.8%, the S&P 500 is up 4.91%, and international markets are up 3.26%. If you sold your holdings during the first half of last year, you missed a year’s worth of gains. Patience.

The halfway point is an excellent time to review your financial plan, asset allocation, and investment holdings. Here are a few ideas and suggestions to help you with your mid-year review.

• Financial Plan. Do you need to update your plan? Are your financial goals intact? Is it working? A financial plan is a crucial component for every successful investor. Our clients with financial plans were calmer and more likely to remain invested during last year’s market decline. Despite the drop in global markets, it did not have a material impact on our client’s financial future.
• Asset Allocation. Stocks are outperforming bonds significantly this year, and, as a result, your asset allocation may need a tweak or two. The rise in equity markets increases your risk level. The higher prices climb, the further they fall, so reviewing and rebalancing your investments is essential to ensure they align with your risk tolerance.
• Capital Losses. Did you realize losses last year? Do you have a tax-loss carryforward? If so, consider realizing gains to absorb your losses. No one likes losses, but you can use them to offset gains, which is a nice silver lining.
• Prepare. Markets fluctuate, rising and falling constantly. If you need money in one year or less, invest in Treasury Bills, do not buy stocks. If you plan to retire in the next few years, keep three years’ expenses in cash. For example, if you spend $100,000 yearly, allocate $300,000 to Treasury Bills. A cash cushion can help absorb the pain of a market correction.

When I ran marathons, an aunt asked me how I could run so far. I told her my training secret was to run far from home. If my goal were to run ten miles, I would run five miles out, so I had to run five miles back. I couldn’t quit running if I wanted to return home.

Enjoy the market recovery, review your investments, adjust your goals, and follow your plan.

Believe you can, and you’re halfway there. ~ Theodore Roosevelt

June 9, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. Prices and yields are for today only and are subject to change without notice.