Reviewing Asset Allocations: Staying Grounded During Market Changes
Strategic asset allocations can help guide you through market ups and downs.
During periods of market uncertainty or downturns, investors may feel concerned about the impact on their investments. Turbulent market conditions may be caused by economic, financial, or geopolitical events. When the future is more unnerving, investors may question if their strategy is still “right’ or be tempted to make rapid changes.
If you find yourself in this situation, it is important not to panic. Instead, seek a measured, analytical approach to help avoid knee-jerk reactions to sell or make other adjustments that may forfeit future growth. This is also an opportune time to call your financial professional – if you work with one – such as the portfolio managers at Welch & Forbes.
One practical step you can take to retain clarity and control is to review your portfolio’s asset allocation strategy. An asset allocation strategy is the division of an investment portfolio among different asset classes, such as stocks, bonds, cash, or alternatives. An individual’s strategy is typically based on an investor’s unique goals, time horizon, and risk tolerance. To review your own allocations, start by looking at the current percentage of each asset class in your portfolio and compare it to your original target allocations. You can analyze whether your current allocations remain in line with your goals; for example, have your income or growth expectations of the account changed?
It is important to expect and prepare as best one can for market volatility. Reviewing strategic asset allocations on a periodic basis may help to better align your investments with your long-term goals, even amid market ups and downs. Analyzing your asset allocations may also give you an opportunity to assess if your risk levels continue to feel appropriate: are they too risky or too conservative relative to your objectives?
Another way Welch & Forbes portfolio managers review and optimize a client’s asset allocation strategy is through the financial planning process. Building and reviewing a financial plan with cash flow scenarios is an objective way to identify an appropriate long-term allocation strategy. For example, the financial plan outcome may suggest that further allocation to equities is warranted to achieve growth despite the inherent risks of this asset class. Or perhaps the plan indicates that a lower-risk allocation is appropriate, as the expected returns are sufficient to meet the anticipated cash flow needs.
When navigating unstable market conditions, it is essential to maintain sufficient cash on hand. This may help avoid selling investments in a down market, potentially at a loss. Also, cash can be held in reserve for opportunistic investing, as volatility can create opportunity. The cash balance that you need depends on anticipated spending and risk tolerance. Your financial professional can help you determine the optimal level of cash reserves to hold.
If you are feeling unsettled during market uncertainty, working with an experienced portfolio manager can help bring structure and perspective. Founded in 1838, Welch & Forbes has managed numerous market cycles, allowing us to draw on this experience when managing investments. We work closely with clients to understand their investment goals and review asset allocation strategies as part of our ongoing portfolio management. Our focus is to support clients through a variety of market conditions by investing thoughtfully, assessing risk, and identifying potential opportunities as they emerge.
If you are interested in learning more about how we may be able to help you with your investments, please contact us online or call our Client Development team at 617-557-9800.
Disclosure: Investing involves risk. Principal loss is possible. This information is provided for educational purposes only and does not constitute specific investment, financial, tax, or legal advice. Consult your tax advisor or legal counsel for advice and information concerning your particular situation. Welch & Forbes, LLC is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training.