Is Now a Good Time to Capture Some Gains in My Portfolio?

A lot of people we’ve been meeting with have noticed that the stock market has far exceeded their expectations since the “Covid Crash” in March 2020…  and now they’re wondering how long this good fortune is going to last. They want to know: “Is now a good time to get out and capture some of these unexpected gains?” Our answer?  Maybe some of it.  

2020 was a volatile year. A quick glance at a chart of the S&P 500 from last year will remind us of just the type of market activity we’re talking about.

• In mid-February, pre-COVID, the S&P 500 Index was at an all-time high
• Just 33 days later, the S&P 500 was down about 34% from its prior peak!
• And then, by mid-August, the S&P was back up to just above “pre-crash” levels, setting yet another new high — a very quick recovery by historical standards
• More recently, by the end of June of 2021, the S&P 500 had climbed over 25% higher than that February 2020 “pre-covid” level

THAT kind of volatility is what we would call an e-ticket ride.

But this serves as a good reminder of several points we often discuss with investors when we’re planning for their retirement, and when we do periodic reviews.

Stocks: Historically one of the best performing asset class

While stocks have historically been one of the best performing asset classes over the long-term:

1. Market corrections and crashes do happen. That’s why it’s usually a bad idea for those nearing retirement or in retirement to have 100% of their money in stocks. If you were 50% in stock, your portfolio may have dropped ½ as much, 40% – even less.  

2. The stock market can drop 20% or more for reasons you’ll never predict.  Some people spend a lot of time and energy listening to market commentators and reading headlines while trying to forecast what’s going to happen next in the market. Often, it’s the thing that you never considered at all that will cause a market downturn. Hey – who could’ve predicted a pandemic that would affect the entire economy the way it did? Nobody.

3. The best way to react to a market crash – or simply market volatility – is to be prepared for it, prior to it happening. We believe that means having a well-thought-out plan in place. One that helps you have an asset allocation that’s customized to you and your situation, and one that you feel comfortable with.

4. If you’re retired, do NOT withdraw the money you need for your monthly expenses from your stock bucket. Having to sell stocks when they’re down, just to pay your bills each month, can be detrimental to your wealth.  That’s why we have multiple Buckets!

5. As human beings, when it comes to investing, we seem to be wired to do the wrong thing at the wrong time. When the market is doing well, we feel great and want to buy (sometimes at all-time highs)! When the market is crashing, we panic and want to sell (sometimes at a low point)!  Having a Buckets plan in place may help give us the discipline we need to keep from making emotional financial decisions.

Is now a good time to capture some gains in your portfolio?

So let’s answer the original question: is now a good time to capture some gains in your portfolio? Think about it this way: if the gains we’ve seen are a lot higher than what you expected to have at this point, then yes — you may want to pare back on some of those gains and put them aside for those times when things start going south again. And they will go down again someday, as our market chart demonstrated. We just don’t know when — and that’s the reason for Buckets.

If you want to find out whether your particular situation warrants this “value averaging” strategy, especially if you haven’t reviewed your portfolio in the last 12 months or so, now may be a great time to do so! We want to make sure you have your Buckets in order and that your current asset allocation is one you feel comfortable with. 

Just give us a call. As always, the advisors at Lucia Capital Group are here to help.