How to Manage Your Investments Late in a Cycle
Nobody knows for sure whether equities will keep rising or for how long, but knowing a little market history can help ease the anxiety.
Bloomberg, January 28, 2021
Live long enough to see several complete market cycles, and patterns emerge: Behaviors during bear market selloffs repeat. Denial and disbelief turn into reluctance and acceptance. Stocks recover from being too cheap to going far beyond fair value. When the belated crash finally arrived, when blood flowed in the streets, most were too terrified to buy, instead doubling down on their bearish bets, missing a generational buying opportunity.
For those of you who may be worried about the goings on in risk markets, I have three suggestions as to how to manage your portfolios: It is my favorite sort of advice, useful regardless of whether the bulls or bears are right.
Start with rotation: Take some chips off the table and upgrade your homestead; You can’t measure the non-monetary benefits of certain assets. Those real estate purchases improved peoples’ life satisfaction. If you are sitting on huge gains, consider what something similar might mean for you.
Invest for the Next Cycle: To get to the next bull market, you must be prepared to holds through the next bear market. Many people don’t realize that “long-term” actually means “multiple market cycles.”
Don’t Fear Capital Gains Taxes: The only surefire way to never pay capital gains taxes is to make sure you never have capital gains.
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