3 Tips for Your Portfolio when the Fed Tapers Asset Purchases
The old saying goes, "the market climbs a wall of worry." When it comes to financial markets, there's almost always something to worry about. However, one thing that has the potential to make market volatility worse is the fear of the unknown. At this point in our financial climate, there are a number of fears about the future that can show up.
Near the top of my "wall of worry" list is how central banks around the world will handle the taper of their asset purchases in such a way as to avoid another "taper tantrum" such as the one in 2013 - 2014. What makes this period more challenging is that both the US and the ECB may be tapering at the same time, unlike in the aftermath of the great recession.
Since March of 2020 there has been a massive infusion of money from both monetary and fiscal stimulus to combat the Coronavirus. Today, advanced economies are awash in money, and this has had the effect of pushing up asset prices, suppressing borrowing rates and creating or expanding newer assets such as cryptocurrencies and NFTs (nonfungible tokens). Some of these assets could be overinflated and subject to significant corrections when the money spigot gets turned down, if not eventually turned off.
What can we do in light of this challenge? First, review your financial goals to make sure you have the right money allocated towards risk assets. For example, having an emergency fund is a helpful way to protect yourself from being forced to liquidate risk assets at the wrong time.
Second, review your current asset allocation. Many of us may need to review our exposure to both equities and fixed income to bring them back into line. Rebalancing your portfolio is an important tool to do so.
Third, consider exploring strategies to hedge the risk in your portfolio. There are buffered products available that may help mitigate some of the downside risk in your portfolio while preserving the possibility for upside gain.
Unknowns are always going to be a part of the financial market. But unknowns don't need to disrupt our peace of mind. Talking through your financial plan, goals, and portfolio allocations can serve to ease the fears that arise.
If you have any questions or would like to discuss your financial plan, click here to schedule a quick chat today.
Disclosures: Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Gate City Advisors is not affiliated with Kestra IS or Kestra AS. www.KestraFinancial.com/disclosures