This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Coping with prosperity: 5 ways to navigate a bull market





It's a nice problem to have.

With the stock market up more than 26 percent in the first 11 months of 2013, investors are facing the kind of decisions that come when sitting on a large gain. Again, it's a pleasant dilemma to face, but one that has to be taken seriously. Years this strong don't come along very often, and it's important to know how to make the most of the value that's been created.

Here are five moves you should consider if your retirement portfolio has taken part in the stock market's powerful rally this year.

1. Keep your retirement contributions up

During the high-flying stock market of the late 1990s, many individuals -- not to mention several institutional retirement plans -- were lulled into believing they could take a "contribution holiday." This meant not putting money into their retirement plans, since strong stock returns had their market values ahead of their funding projections.

Of course, when a dozen years of disappointing returns followed, those same retirement plans went from being ahead of schedule to badly behind. You need both your contributions and investment returns to build your retirement nest egg, and your contributions are the only thing you can count on year after year.

2. Focus on future income, not current value

Don't get carried away with how big your portfolio looks after a strong year. You are bound to have some ups and downs along the way, but if you use a retirement calculator to focus on how much retirement income your savings could produce, it will give you a much more stable perspective.

3. Reset your asset allocation

While stocks were way up this year, bonds were largely down, while conservative vehicles such as savings and money market accounts produced virtually no return. As a result, your asset allocation may have gotten a little skewed, with stocks growing to represent a larger portion of your overall asset mix. It is important to keep your asset allocation in line with your risk parameters, so this might require resetting your asset allocation to bring your stock holdings back into line.

4. Rotate sectors

Even with stocks looking a bit pricey, getting out of the market is not a realistic option for most retirement programs. You need long-term growth, and alternatives such as bond yields and savings account rates are not very attractive. However, even while you keep a healthy stock representation, consider rotating from hot sectors of the market to more undervalued ones. This gives you an opportunity to sell your winners without quitting on stocks altogether.

5. Keep taxes in perspective

Some people are loathe to sell because of the tax consequences of realizing a gain. However, if this results in you holding onto overpriced stocks for too long, the volatility you suffer could be far worse than any tax liability. Remember, a tax liability represents just a portion of your gain on the stock, while market volatility affects the entire market value of the stock.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,279.74 +13.75 0.08%
S&P 500 2,010.40 -0.96 -0.05%
NASDAQ 4,579.7890 -13.6380 -0.30%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs