With the stock market flirting with record highs, the temptation to dive in headfirst is strong. But seasoned financial advisors caution against reactionary moves—because the smartest investment decisions don’t come from chasing the latest market frenzy, they come from disciplined strategy.
Why Chasing the Market Is a Losing Game
The S&P 500 recently hit new intraday highs, with both the S&P 500 and Nasdaq Composite closing at record levels earlier this week. Growth stocks have outpaced value stocks this year, with the iShares S&P 500 Growth ETF up 7.57% compared to the 4.21% return of the iShares S&P 500 Value ETF. Yet, as Carolyn McClanahan, CFP and founder of Life Planning Partners, points out, trying to predict the next move in markets or sectors is a fool’s errand. “Sometimes things cool off, and chasing the market leads to regret,” she says. Instead, investors should anchor their asset allocation not on market gyrations but on their personal financial goals and risk tolerance.
This advice is more critical than ever given the unpredictable influence of policy shifts from Washington, D.C. Adam Reinert, CIO at Marshall Financial, notes how the market’s sharp drop following tariff announcements earlier this year led many investors to move defensively—only to see the market bounce back. The lesson? Timing political events is a risky game that rarely pays off.
The Realignment Imperative After Market Rallies
With equities surging since early April, Reinert advises investors to reassess their portfolios. If the equity portion has ballooned beyond your risk comfort zone, it’s time to rebalance. This is not just about preserving capital but about maintaining a portfolio that can withstand volatility without forcing panic sales.
Dividend Stocks: More Than a Safe Harbor
Dividend-paying stocks often gain spotlight during turbulent times, but Marguerita Cheng, CEO of Blue Ocean Global Wealth, urges investors to think beyond just income. Dividend stocks can reduce volatility, but they should be part of a total return strategy that balances growth and value. This approach offers flexibility and steadier returns over time.
For income-focused investors, especially those nearing retirement, dividend stocks have a role—but fixed income remains a more reliable income source in today’s environment. McClanahan favors municipal bonds for their tax advantages and investment-grade corporate bonds for stability, while Reinert highlights the attractive yields currently available in the bond market.
The “Bucket” Strategy: Tailoring Allocation to Time Horizons
Chuck Failla, CEO of Sovereign Financial Group, champions a bucket approach, segmenting portfolios based on when money will be needed. This method helps avoid reactionary shifts and aligns asset allocation with real financial goals:
- Immediate Needs (0-12 months): Keep funds in ultra-safe vehicles like money market funds or CDs—equities have no place here.
- Short Term (1-2 years): A conservative mix with 10% equities and 90% fixed income, focusing on high-quality, short-duration bonds and blue-chip dividend payers.
- Medium Term (3-5 years): Increase equity exposure to around 30%.
- Longer Term (6-10 years): A balanced 50/50 split between stocks and bonds, with flexibility to increase equity allocation up to 75% if market conditions are favorable.
- Long Term (10+ years): Aggressive growth with 90-95% equities, including alternative investments like private equity and private credit.
This structured approach ensures that investors are not caught off guard by market swings and that their portfolios are designed to meet their specific timelines.
What Should Investors and Advisors Do Differently Now?
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Stop Trying to Time the Market: The interplay of policy announcements, geopolitical tensions, and economic data makes timing nearly impossible. Instead, focus on disciplined, goal-oriented asset allocation.
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Rebalance Regularly: With the market’s recent rally, many portfolios have drifted from their original risk profiles. Rebalancing is crucial to maintain risk tolerance and avoid overexposure.
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Embrace Total Return Investing: Don’t chase just dividends or capital appreciation alone. A balanced approach that includes dividend payers, growth stocks, and fixed income can smooth volatility and enhance returns.
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Adopt a Bucket Strategy: Align your portfolio with your financial timeline. This reduces panic selling and ensures liquidity for near-term needs.
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Consider Tax Efficiency: Municipal bonds and tax-advantaged accounts can enhance after-tax returns, especially for income-focused investors.
Looking Ahead: A Word on Market Trends and Opportunities
One trend gaining momentum is the increasing appeal of alternative investments in long-term buckets. Private equity and private credit, once the domain of institutional investors, are becoming more accessible to individual investors through funds and ETFs. These alternatives can offer diversification benefits and potentially higher returns in a low-yield environment.
Additionally, ESG (Environmental, Social, and Governance) investing continues to grow, with data from Morningstar showing a 30% increase in ESG fund inflows year-over-year. Incorporating ESG factors can align portfolios with personal values without sacrificing performance.
Final Thought
In a market environment marked by record highs and policy uncertainties, the best move is often to resist the urge to react impulsively. Instead, investors and advisors should double down on disciplined strategies tailored to individual goals and timelines. By doing so, they can navigate volatility with confidence and position portfolios for sustainable growth.
For those looking to sharpen their edge, remember: The market’s next move is unknowable, but your response doesn’t have to be. Stay strategic, stay diversified, and let your financial goals—not headlines—guide your decisions.
Source: Financial advisors say don’t chase the market highs. What to do instead