A good Financial Advisor will tinker with client portfolios during changes in market conditions. This is the easy way out as clients will think "My Advisor is on top of it." A great Financial Advisor will take the more difficult route, which is often telling the clients they should do nothing during changes in market conditions. A great financial plan will work regardless of what the market is doing during any given time. There will always be changing market conditions and this should be built into the client's financial plan as well as communicated to the client often from day one.
Senior Product Manager, Retirement Investment Solutions at Commonwealth Financial Network
Answered 2 years ago
Looking ahead, we see a fight between earnings growth and valuations, a key theme for the second half of 2024. After steep inflation allowed companies to hike prices to defend earnings, the next climb will be cost control and margin expansion as inflation cools. While supply chains have improved and wage growth has slowed, a tight labor market could create headwinds for earnings. Margins have expanded in 2024 but are already above historical averages, making further significant gains challenging for the S&P 500. This is an opportunity for a portfolio adjustment, specifically where valuations have been cheaper for international stocks over the past 15 years. However, a shift in the global landscape may be coming. A rebound in consumer spending abroad, where consumer discretionary companies are trading at nearly a 50 percent discount to U.S. firms, could drive a rebound in equity prices. As the year continues, valuations may decline as it becomes more difficult to maintain high compounded growth rates. Given the expectations for elevated growth and a modest decline in valuations, we still see the S&P 500 continuing to increase in the second half of 2024. As I look to adjust portfolios I am increasing allocations to smaller-cap and international stocks.
A change in market conditions affected a portfolio I used to manage. This is how I made adjustments to minimise risk and increase returns. The portfolio, at the time of economic market uncertainty, contained mainly technology stocks. At such a time the technology sector experienced a downturn due to weaker spending and increased competition, and thus, the portfolio suffered a lot of loss. Thus, to minimise the effects of losses, I used the diversification strategy and bought stocks from the healthcare and utility sectors. By doing this, I was able to overcome the impact of technology stocks on overall returns. It helped me reduce the risk of facing greater losses due to a decline in a particular sector. Such fluctuations in market conditions cause the equity allocation to deviate from the determined results and rebalance to minimise risk and increase returns. I sold some shares of the companies that were underperforming, which saved me by reducing the equity percentage in the sector.