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A few moves to make during market jitters

The Savings Game

It’s normal to worry about your portfolio when the stock and bond markets become volatile, and when you see your portfolio fall significantly in value. It’s natural to wonder what to do, if anything, to protect your portfolio.

The best general advice is to keep focused on long-term objectives. Ideally, you have structured your portfolio based on long-term objectives. If so, you probably don’t have to do anything drastic to modify your portfolio. If not, make some changes you can live with.

Consider the following:

Sell some of your stock holdings

The previous nine years have likely been good for your portfolio. If you have significant gains in the stock portion of your portfolio, and have not reduced your holdings, take some profits and reinvest conservatively, if only temporarily. For example, consider Treasury bills, money market instruments or short-term bond funds.

Review your allocation of stocks and bonds

If you are 15 or more years away from retirement, don't be concerned about having too high a percentage of common stocks in your portfolio. However, the closer you get to retirement, the more you should increase the percentage of your portfolio in bonds.

For example, prior to retirement, I often had 70 percent of my portfolio in stocks. However, as I approached retirement I gradually increased the size of my bond portfolio to 50 percent. In retirement, I have maintained a 50-50 ratio of stocks to bonds for approximately 20 years.

Many retirees maintain a much higher percentage of bonds than 50 percent, which I believe is a mistake. There will always be some inflation, so it is necessary to maintain a significant portion of stocks in your portfolio during retirement both to protect you from inflation and because the expected lifespan for retirees is continually increasing.

In the long run, you should still be investing in stocks even if there are periods in which common stocks don’t do that well.

Diversify your stock portfolio

Although I sometimes devote some of my portfolio to sectors I like, such as health care, I maintain the majority of my portfolio in diversified index mutual funds.

There can be a great deal of volatility in individual sectors. If you invest disproportionately in one sector, you run the risk of deeper losses in your portfolio compared to the broader market. A good example is the technology sector in recent months.

If you are the type of investor who looks at the value of your portfolio every day, you will sleep better at night if you maintain a diversified portfolio of index funds.

Re-balance your portfolio at least once a year

I rebalance more often when there are significant changes in the value of my portfolio. For example, if my goal is to maintain a 50-50 ratio of stocks to bonds, then when my stocks reach 55 percent of the value of my portfolio, I sell the portion of my stocks that have done the best. I then reallocate these funds to the bond portion of my portfolio.

This approach provides more stability in your portfolio when there is a great deal of volatility.

Hold the appropriate types of bonds

Bonds, overall, did poorly in 2018, primarily because the Federal Reserve continually raised interest rates. When the Fed does this, long-term bond holdings fall more in value than shorter-term holdings. It's hard to predict future actions of the Fed.

If you want to ensure that the bond portion of your portfolio is more stable, switch from long-term bond holdings into intermediate- and short-term bond holdings.

Build liquidity

During periods of great volatility, if you can, increase the size of your emergency funds in liquid short-term investments. You can always dollar-cost-average back into the stock market later when volatility becomes tamer.

Elliot Raphaelson welcomes your questions and comments at

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