As investors have relished in the gains of a booming stock market over the last handful of years, complacency has become commonplace.
But with the cyclical nature of the economy and the stock market, there's no doubt another downturn will hit Wall Street eventually. Is your portfolio properly positioned to guard against threats such as recessions and trade wars?
"It's easy to have let your portfolio drift over the last several years. U.S. stocks have outperformed international stocks, tech stocks have outperformed darn near everything. Even small caps have outperformed large caps," said Jeff Kleintop, chief global investment strategist for Charles Schwab Corp. (SCHW) - Get Charles Schwab Corporation Report .
According to Kleintop, the market could soon be at a turning point that might see a reversal of those longer-term trends. And the time to prepare is now.
"Thinking back to what should be the right balance in your portfolio ... now is the most important time in eight, nine, maybe 10 years to rebalance that," Kleintop said.
But that could mean bowing out of some major winners, such as hot technology picks Micron (MU) - Get Micron Technology, Inc. (MU) Report , Advanced Micro Devices (AMD) - Get Advanced Micro Devices, Inc. Report and Nvidia (NVDA) - Get NVIDIA Corporation Report .
"It's hard to sell the winners and buy the laggards. Emotionally it's really tough to do and it doesn't always work," Kleintop said. "But I think we're at that point where the leaders and the laggards kind of start to reverse. That could take a big bite out of people's portfolios that haven't reversed. That's often the case late in the economic cycle."
His strategy: "I would look at U.S. versus international performance, rebalancing perhaps back toward international, back towards value from growth and back towards large caps from small caps," Kleintop said.
But Kleintop's strategy of timing that rebalance to take place at a specific point in a market cycle doesn't fit for everyone.
"Investors who attempt to time the market are doomed to underperform," according to Robert R. Johnson, Principal at the Fed Policy Investment Research Group and former President and CEO of The American College of Financial Services.
He cited investment icon and Vanguard founder Jack Bogle, who said, "The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently."
So what's an investor to do if no bell will ring?
"The best way to protect against events such as trade wars is to diversify your holdings. With trade wars, one can't predict which industries or individual firms will bear the brunt of trade differences between countries," Johnson said.
"My advice is for investors to purchase stocks that have been consistent performers through time," Johnson suggested. He noted that he favors stocks with increasing dividends over a considerable amount of time -- think Johnson & Johnson (JNJ) - Get Johnson & Johnson (JNJ) Report and Genuine Parts Co. (GPC) - Get Genuine Parts Company (GPC) Report , he said.
"Simply investing in a stock because it has a high dividend yield is problematic," Johnson said, "as some stocks with very large dividend yields are likely to have unsustainable dividend levels." With that, dividend growth beats dividend yield when investors want to build up a protective barrier against outside threats.
Hope you're locked and loaded.
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