Recently, it seems that every time I sit down at a group lunch or dinner, someone leans over to me and says, “Boy, it must be stressful to do what you do at a time like this.” My response? “If this environment is stressful at this point in my career, I probably shouldn’t have chosen this line of work.”
I spend a lot of time with business owners and leaders, so it’s no wonder that they are looking for guidance and direction. The current economic environment is unpredictable in many ways, which makes it difficult for both consumers and companies to plan. This uncertainty has bled over into the stock market, which has exhibited a higher level of volatility in recent weeks, causing some investors to wonder what to do with their portfolios, if anything.
This is the first of a four-part series to help you understand and weather the current uncertainty that is in the news and in the markets. As you read this series, you should know that our bias is towards long-term investing and away from short-term trading. After all, volatility is the reason that the stock market provides higher returns to investors than a bank account. With higher risk, an investor should expect higher returns.
But risk means you can temporarily, and sometimes permanently, lose money.
So let’s start with the fact that a downturn in the financial markets does not require you to “do something” in your portfolio, but it should entice you to review your portfolio. We encourage you to evaluate your portfolio in five basic ways.
Purpose – Why do you have this account? What is your goal? Is it for an immovable expense like education, or is it a “bucket” of money that will be used over decades, like a retirement account?
Time Horizon – How long can you have these funds invested? If you have a 5+ year time horizon, typical volatility itself is not a reason to make a change. However, if you need to use your money in the next year and it is invested in the stock market, volatility may cause you to withdraw funds at a time when the market is down.
Expenses – Do the expenses you are paying in your portfolio make sense for your goals? The expenses in your portfolio don’t guarantee positive performance. But if you do work with an advisor, the fees you pay provide you with access to an experienced professional who will help you make sure your portfolio is on track for your goals. Also, if you have an investment that provides a guaranteed death benefit or income benefit, you are paying an extra expense for that guarantee. It should provide you comfort during market fluctuations.
Taxes – How much will it cost you in taxes to make the transition? If you reallocate investments in a tax-protected investment such as an IRA, annuity or 401(k), you won’t pay taxes when you do so. If, however, you reallocate in an account without tax protection, you may have to pay capital gains tax. While you shouldn’t “let the tax tail wag the dog,” you should assess tax implications before you make any changes to your portfolio.
Risk / Reward Potential – Is your risk aligned to your goals? In general, the higher the risk, the higher the potential reward when it comes to investments. That means that if you expect high returns, you also need to be able to tolerate the inevitable downturns. The volatility we have seen so far in 2025 is very typical and was actually expected by those of us who have managed money for a long time. If you are invested in the stock market, current volatility is not a reason to change your portfolio. However, if this volatility has you not sleeping at night, you may consider if the stock market is the right place for your money.
Our next three blogs will help you focus on key elements of your investment portfolio. The first will be about risk – how much you need, how much you can handle, and how to use it well. The second will be on ways you can alter your portfolio if your confidence is shaken. And the third will give you some historical perspective about market downturns – including the Great Financial Crisis. (Spoiler alert: Despite what the last two years would tell us, stock market volatility is typical.) If you have any questions you’d like us to address in this series, please send them to us at hello@bfsadvisorygroup.com.