Best Moves for Long-Term Investors With Stocks Near All-Time Highs

Stocks have been on a remarkable upward trajectory over the past two years, with the S&P 500 enjoying an impressive rise of approximately 60 percent. Investors have been buoyed by a combination of factors, including cooling inflation, advancements in artificial intelligence, and the lack of an economic recession. However, this surge in stock prices brings with it questions about valuations, leaving long-term investors contemplating their next moves. Financial experts provide valuable insights for navigating the investment landscape as stocks sit near record highs.

Portfolio Rebalancing: Why Now May Be a Good Time to Adjust Allocations

With stocks nearing all-time highs, there’s a high likelihood that shifts in portfolio allocations have occurred over the past few years. Experts recommend that now is an opportune time to review those allocations. “If investors only do one thing, they should rebalance portfolios back to their targeted allocations,” advises Chris Fasciano, senior portfolio manager at Commonwealth Financial Network. Similarly, Sameer Samana, Senior Global Market Strategist at Wells Fargo Investment Institute, encourages investors to update their financial plans and realign their portfolios in accordance with the plan’s recommended allocations.

Maintain Portfolio Diversification

Rebalancing and diversification are intrinsically linked. A key motivation for rebalancing is to ensure that a portfolio remains diversified and does not become overly exposed to a single asset class. Dec Mullarkey, managing director at SLC Management, emphasizes the importance of diversification: “For long-term investors, holding well-diversified portfolios, or broad market indices, is generally a winning strategy.” Mullarkey acknowledges that while some segments of the market may seem overvalued, others will still deliver impressive growth. “Sticking with well-diversified portfolios and periodically rebalancing to your long-term asset mix targets tends to be a reliable formula to capture stable long-term performance,” he adds.

Look to Reduce Risk in Your Portfolio

As stocks reach new highs, several experts are adopting a more cautious approach, urging investors to closely scrutinize any holdings that may exhibit excessive risk. “With valuations stretched, investors need to be more discerning with their investment decisions,” warns Patrick J. O’Hare, chief market analyst. O’Hare stresses the necessity for heightened risk management, especially in sectors like technology and AI, which have seen substantial price movements. He suggests reallocating funds from positions that have surged in weight toward investments that offer better long-term growth potential. One promising avenue for long-term investors could be dividend stocks. “With interest rates expected to come down, the fortunes for dividend-paying stocks should be turning up,” O’Hare continues. “There is always a place for dividend-paying stocks in a balanced portfolio looking to lower volatility and enhance total return potential.”

Conclusion

As the stock market continues to reach unprecedented heights, long-term investors are faced with strategic decisions that will shape their portfolios for years to come. By focusing on portfolio rebalancing to align with targeted allocations, maintaining diversification, and exercising caution in risk management, investors can navigate these turbulent waters with a clearer path to potential returns. Capitalizing on opportunities within dividend stocks may also provide a balanced approach to volatility, enhancing overall portfolio resilience. In a year marked by unprecedented stock valuations, strategic adjustments today could pave the way for sustainable growth in the future.