Recently, we’ve heard from a lot of dentists who are worried about their investment portfolios being negatively impacted by a 2019 market downturn that has been widely speculated about in the media. Here are some of our thoughts on how to prepare for a possible pullback in the stock market:
1. Maintain proper diversification
This is critical to weathering a storm, and owning a lot of “stuff” doesn’t mean you’re properly diversified. Make sure you have proper exposure to stocks in U.S., Asia, Europe, real assets and fixed income.
2. Don’t stop investing
Continue making monthly deposits during a decline. New deposits have the advantage of buying equity (stock) at a ‘bargain’ and maximize the opportunity to be well-positioned during a recovery period. Currently, Europe and Asia have experienced a more significant decline than the U.S. and should be receiving an appropriate level of deposits given your age and risk profile.
3. Monitor and rebalance your mix of stocks and bonds
For properly structured portfolios, market volatility provides an opportunity to reset (or “rebalance”) your investments to the right mix of stocks and bonds. Target date funds or single-fund asset allocations don’t allow for dynamic rebalancing to occur as efficiently. Although target-date, or target allocation funds might be an appropriate solution for very small accounts, they are less effective at rebalancing and tax management during volatile periods.
4. Harvest losses to reduce capital gains taxes
Manage the capital gains taxes you have in each fund by using this period to harvest losses (where appropriate) and position yourself properly for an eventual recovery.
5. Communicate with your financial advisor
Maintain a close relationship with your advisor to ensure you’re well positioned given your age and time frame for possible withdrawals. Communicate regularly.
6. Consider your timeline for retirement
Finally, if your time to start withdrawing money for retirement is getting close (within 5-7 years) you will likely want to limit your exposure to the equity/stock market on any holdings that you’ll need within 10 years from today.
If you have questions about your personal investment portfolio, we’re always on-call. You can click here to book a free consultation with one of our dental-specific financial advisors.
Also, be sure to learn more about this topic by listening to our recent episode of The Dentist Money™ Show podcast.