Mid-Year Market Outlook: Buckle Up

As we move into the second half of 2020, experts say there remains a lot of uncertainty in the markets and we have a long, bumpy ride to recovery. The pandemic has slammed the world’s economy. In the U.S., millions of Americans are out of work and gross domestic product (GDP) dropped nearly 5% in the first quarter of 2020. Furthermore, economists expect it'll get worse before it gets better. As we look to the fall, a market correction is likely with the continuation of Covid-19, and the U.S. election and its impact on trade and fiscal policies. Therefore, recovery to fourth quarter 2019 levels isn’t likely until 2022 in the U.S. and some European countries won’t recover until 2023.

Meanwhile stock indices are near all-time highs. What’s going on? The markets aren’t pricing in a lot of risk. They’re responding to rates being at zero and the potential for more stimulus to keep bolstering asset prices.

What can investors do? If ever there was a time to re-examine your portfolio, now is the time. Here are five things you can do.

Focus on protection more than growth. With so much uncertainty and high potential of downside, we believe it’s a good time to think about protecting what you have and what you need versus growing your portfolio which requires taking on more risk.

Re-examine your risk tolerance. Be sure you are comfortable with the level of risk in your portfolio. We recommend pruning some risk from your portfolio if necessary; now may not be the time to speculate. Based on your risk tolerance, we are recommending that you look for mature, reliable companies that can ride choppy markets if you pick stocks and/or choose low-cost, well-diversified index ETFs.

Don’t put all your eggs in one basket. Diversification is so important in times like these. Think of diversification like it’s the designated driver of your portfolio. They might be boring but they are protecting you. Be sure you have a variety of asset classes in different industries, countries, and sizes of companies.

Rethink your cash strategy. Decide how much cash is enough for your situation. Are you out of work? Concerned you will lose your job? What if you’re near or in retirement? All these situations mean you likely have to increase your cash balance to a higher level than you may have considered early this year because you don’t want to sell securities when they are down.

Get help when you need it. If ever you needed a financial advisor, now may be the time. A financial advisor can help you take the emotion out of your investing decisions and focus on your short- and long-term goals. Your advisor can help you stay on track. It’s important to work with a fiduciary advisor who puts your interests first and isn’t just trying to sell you a product.

While the markets are trading on thin air, you should be buckled up and ready for the choppy ride ahead.

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Toroso does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Investing involves risk; principal loss is possible. ETFs seek to generally track the investment results of an index; however the ETF may underperform, outperform or be more volatile than the referenced index.