Finance 7. Play defence with your equity portfolio Looking to stabilize your portfolio without exiting from equities altogether? Consider shifting some of your equity allocation to defensive names. Think consumer staples, utilities and health-care companies. These are “steady Eddie” stocks that don’t generate a whole lot of excitement, but usually perform well in a market downturn. It’s common sense: no matter what the stock market may be doing right now, people will still need to wash their hair, brush their teeth, go to the grocery store, keep the lights on in their house and take medicine for their headache. The business prospects don’t change all that much and, in times of volatility, that’s exactly what you want. If you’ve shunned such defensive stocks over the past several years in an effort to capitalize on “growthier” parts of the market, it may be a good idea to take a closer look at them now. Just keep in mind that while such assets have historically proven to be less volatile than others, there’s no *guarantee* that they’ll behave this way in the future. 8. Harvest profits on winning positions If you’ve been invested in North American equities throughout the current bull market – particularly if you’ve put your money into large, blue-chip dividend-paying stock – congratulations. There’s a strong likelihood that you’re sitting on a few “winners” which have increased substantially in value over that time. But, as the saying goes, to everything there is a season – and now is the season of harvest. If you’re sitting on significant profits in some or all of your equity portfolio, it’s a good time to take profits on those winners, or at least trim them back. This goes double if you’ve been fortunate enough to have invested in the hot performers of recent history – the FAANG stocks, momentum strategies, technology in general, and so on. Could you end up missing out on some gains if the stock market continues to climb? Sure. But at this point, the potential for further upside gains is likely a lot smaller than the potential for downside losses, should markets drop precipitously. Another benefit of taking profits with top performers – you can build up cash. Not only does cash help to anchor your portfolio in times of above-average volatility (returns on cash are fairly steady, regardless of what the equity market is doing at the time), it allows you to build up a “war chest” of funds which you can access to buy beaten-down stocks if or when a full correction or bear market comes to pass. 9. Trim aggressive positions Historically, the first casualties of any market downturn are “risky” assets: small-cap companies, tech startups, junior exploration plays in mining or oil and gas, or any business operating in an emerging industry (marijuana and bitcoin are classic examples). As investors become more wary of volatility, they tend to jettison those assets that are affected more by volatility. If you play the “high-risk, high-reward” game, now is probably a good time to be extra cautious and trim back these positions now, before you’re forced to sell into a downturn when everyone else is trying to do the same thing – never the best way to secure the best price. In a similar vein, if you’re currently thinking about entering a new high-risk, high-return opportunity, you’ll definitely want to do extra homework and perform a rigorous “what if ” analysis. Ask yourself: what if the market dropped by 20% in a relatively short period of time? Do the numbers still work? Does the opportunity still represent a good risk/reward trade-off? Maybe it does. But run the numbers to be sure. 34 | www.snowbirds.org
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