Preparing for Pullbacks

 

 

 

By Kate Warne, PH.D., CFA

Exponential smoothing: Prediction of stocks

Investment Strategist

Reposition your portfolio. Make sure you have the appropriate mix of stocks and bonds. After last year’s market gains, you may need to add fixed income to help return to the investment mix that fits your long-term financial goals and tolerance for risk. Consider adding short- and intermediate-term fixed income to help reduce your portfolio’s sensitivity to rising interest rates.

  1. Prepare your emotions and expectations for greater volatility. If you know that it’s normal for stocks to drop by 10% annually, you’re likely to be less surprised and less likely to overreact when a pullback occurs.
  2. Take a systematic approach. If you’re concerned that stocks are high, consider investing the same amount every month to build a well-diversified portfolio. While this doesn’t prevent a loss or guarantee a profit, it can help remove concerns about the market’s moves from your decision making.
  3. Pullback offer opportunities. Consider adding stocks when their prices decline, if appropriate for your situation. Buying during dips and corrections has resulted in higher returns in the past, since stocks rose on average over the following six months and year.