5 Ways to Run With an Aging Bull Market

Strategists from Wells Fargo Investment Institute share tips on how investors can position their portfolios to focus on the long-term.

August 26, 2019

After a decade of reaping the benefits of a bull market in U.S. stocks, today’s investors face a volatile market—and proper positioning of your portfolio in the face of mixed economic signals has become increasingly important.

Here, Wells Fargo Investment Institute (WFII) strategists offer five tips for positioning your portfolio that could help you maintain a forward focus—and stick close to your long-term strategic target allocations.

  • 1. Rebalance when volatility strikes. Take steps to maintain the strategic or long-term target allocation designed to help achieve your long-term goals. As markets rise, the positions may need to be trimmed and the cash held or reallocated to markets where valuations are better. As markets fall, the opportunity may arise to restore the target allocation.
  • 2. Help reduce price volatility with income-generating assets. Income is a sometimes overlooked component of portfolio returns. To potentially improve the income-generating ability of a portfolio, you can lengthen the duration of your high-quality bonds. Dividend-paying stocks and REITs offer additional streams of portfolio income.
  • 3. Use cash to your advantage. If your portfolio already holds a sizable amount of cash consider investing your cash in case markets correct in the coming months. Another potential strategy is dollar cost averaging, which involves investing cash over time to take advantage of market fluctuations.*
  • 4. Consider greater exposure to emerging market equities and sectors that represent higher-quality earnings. Investing in international assets can help you further diversify your portfolio. Valuations in many emerging markets look attractive, and recent economic data point to stable economies in China and other developing countries. As for U.S. equity markets, WFII strategists favor sectors such as Information Technology and Industrials, areas of the market with higher-quality earnings.
  • 5. Add strategies that can benefit from various market conditions. A bear market can occur with little warning. Adding assets that can profit in both up and down markets may help prepare your portfolio for possible downturns.

*A periodic investment plan such as dollar cost averaging does not ensure a profit or protect against a loss in declining markets. Since such a strategy involves continuous investment, the investor should consider his or her ability to continue purchases through periods of low price levels.

There is no guarantee that dividend-paying stocks will return more than the overall stock market. Dividends are not guaranteed and are subject to change or elimination.

Additional Resources

Learn four ways to invest more confidently in volatile markets.

Risk Considerations

All investing involves risk including the possible loss of principal.  Asset allocation and diversification do not guarantee investment returns or eliminate risk of loss.  Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile.  A stock’s value may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors.  International investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility.  These risks are heightened in emerging markets. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities.  Bonds are subject to market, interest rate, price, credit/default, call, liquidity, inflation, and other risks. Prices tend to be inversely affected by changes in interest rates. Cash alternatives typically offer lower rates of return than longer-term equity or fixed-income securities and may not keep pace with inflation over extended periods of time.