After a wild 2018, when the S&P 500 SPX, -1.46% fell the most since the financial crisis, many people are re-evaluating their investment strategies.
And that’s probably a good idea, especially as the current bull market could turn 10 years old this March. At NerdWallet, we generally recommend you don’t fuss too much with your retirement portfolio, opting instead for simple, low-cost strategies. But the reality is many people need to tap stock investments sooner than retirement, so a hands-on approach may make sense for these investors.
Like many New Year’s resolutions — diets, exercise or budgeting, for example — investment strategies are personal. But unlike those others, coming up with fresh ideas for what to do with your investments can be difficult. Two experts offer tactical ideas to consider this quarter.
1. Map out your 2019 goals
Do you have a blueprint for where you plan to invest money this year? If not, it’s time to get to work.
The first quarter should serve as the foundation for your strategy — with tweaks to come later in the year, says John Augustine, chief investment officer for Huntington Private Bank, based in Columbus, Ohio. He urges investors to get the following basics covered:
- 401(k). Set up regular contributions that, if possible, hit 2019’s $19,000 limit — irrespective of what’s happening in the market. Rebalance your 401(k) portfolio as needed.
- IRA. You fund an IRA for tax year 2018 up until the tax deadline in mid-April. Then focus on your 2019 IRA contributions (the limit goes up from $5,500 to $6,000 this year, or $7,000 for people 50 or older).
- Savings. Set a savings plan and goal for the year — and stick to it.
Consistently adding money to the market — a strategy known as dollar-cost averaging — will be especially important, as Augustine believes the first quarter could be the year’s most volatile. But that’s hardly new; in a 25-day span in late December and early January, the S&P 500 notched daily gains or losses greater than 2% on eight different days. By comparison, there were no 2% moves in all of 2017.
The source of much of that volatility — the prospect of slower global economic growth — has many investors worried a market crash and U.S. recession are more imminent. The odds of a recession by the end of 2019 are about 21%, according to a gauge from the Federal Reserve of New York.
Even as investors fret about the next recession and corporate earnings growth that’s expected to be more subdued ahead, U.S. companies remain more attractive than international stocks, Augustine says. “Keep most of your money at home,” he advises, and consider buying funds tracking 2018’s laggard industries (such as industrials).
Be sure to visit: Invest Simple with Lazy Portfolios
Looking to have some fun? Augustine has a simple strategy for all ages: “Buy a piece of your life.” By this he means examining where you spend money that older (or younger) generations don’t — and investing 10% to 20% of your IRA in five related stocks.
For example, baby boomers might invest in health care stocks, whereas millennials might buy shares of streaming entertainment services. “The goal is to have some fun and engage with your IRA,” Augustine says.
2. Craft a plan to protect against losses
The S&P 500 narrowly escaped entering a bear market (defined as declines in excess of 20%) in December, but such an event could be traumatic if your investing horizon is a few years, such as if you’re approaching retirement. Now’s a good time to assess whether your objective is maximizing profits or protecting assets from losses, says Chris Cook, founder and president of Beacon Capital Management in Centerville, Ohio. Here’s how to gauge where you are on that scale:
- Maximizing profits. The market’s a proven long-term bet, so buy-and-hold investors with decades to invest probably shouldn’t sell anything — and market declines could actually be an opportunity to buy stocks at lower prices, Cook says.
- Protecting from losses. If you plan to tap money in your portfolio within the next few years or already are doing so, focus on protecting those assets from more severe market declines, Cook says. People often forget the effects of compounding when the market’s falling; after a 10% slump, you need to gain 11% to recoup those losses, he adds.
If protecting some (or all) of your assets is a goal, spend time deciding on a strategy of when to sell — and when to buy again. Following pre-established rules is key to success with such timing. Oftentimes, people wait too long to sell — say, when their portfolio has slumped 20% — at which point they’ve experienced the brunt of the pain and may as well ride it out, Cook says.
Don’t miss: The best places to retire abroad in 2019—on less than $1,800 a month
What does such a strategy look like? It depends on your objectives, but Cook recommends the following thresholds as a guideline for a diversified portfolio (meaning one with a variety of assets — bonds, stocks and index funds, for example):
Sell assets when your portfolio’s value drops 10%. “That’s usually a sign that sentiment is shifting,” he says, adding that his research shows 10% corrections suggest a 50% chance of a bear market.
Buy the same assets back in equal measures when the market has recovered 15% from its bottom, Cook advises.
“The idea is to have your game plan in place, so you know when you’re going to execute it, and then follow your rule,” Cook says. “That takes emotion out of the equation.”
More from NerdWallet:
Get a daily roundup of the top reads in personal finance delivered to your inbox. Subscribe to MarketWatch's free Personal Finance Daily newsletter. Sign up here.