Tags: Gold | stocks | rebalance | portfolio

MarketWatch's Gold: Now Is the Time to Protect Stock Gains

By John Morgan   |   Friday, 01 Aug 2014 12:33 PM

Now is the time for investors to get out the broom and perform a mid-summer portfolio cleaning, according to MarketWatch columnist Howard Gold.

Even though stocks might not plummet, it helps to be prudent.

Gold has consistently (and wisely) dismissed doomsayers and visions of equity apocalypse in recent years as the market has continued to go up.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

Even now, he is not ready to throw in the towel.

"Although risks are rising, I don't think the whole market is ready to come undone. So, bailing out completely could cause you to miss substantial price gains if stocks continue to rally as the economy recovers," he wrote.

Gold's advice instead is to rebalance portfolios and reduce risk.

A good place to start might be to heed Federal Reserve Chairman Janet Yellen's latest public remarks, where she downplayed market bubble fears, but said valuations appear stretched in soaring social media and biotechnology stocks, and in risky corporate junk bonds.

"Translation: hold most stocks, real estate and investment-grade bonds. Sell momentum stocks, leveraged loans and lower-quality credits that pay abnormally high interest rates," Gold explained.

He said U.S. stocks appear tired for the short term, with fewer of them hitting new highs and market breadth narrowing in the face of August doldrums and geopolitical upsets.

For those whose stock returns have thrown their target allocations out of whack, he advised rebalancing now. "If you have, say, 55 percent of your money in stock and your target is 50 percent, it might be prudent to sell that additional 5 percent of stock and rebalance into bonds and cash. "

Gold recommends selling riskiest assets first — such as aggressive growth stocks and funds — and only then cutting back on core holdings.

He also recommends selling emerging market stocks and bonds.

In Thursday's big stock sell-off, all 30 of the stocks in the Dow Jones Industrials Average were down — a rarity that showed how broad-based the fall off was, USA Today noted.

The newspaper's financial expert John Waggoner suggested materials stocks may be a good place for investors to focus on — he noted they often do best at the end of an economic cycle, and when other stocks are declining.

Waggoner said International Paper and E.I. DuPont de Nemours are two candidates in the materials sector that have low valuations.

Waggoner passed on a bit of advice from James Paulsen, chief investment officer at Wells Capital Management, who wrote, "If the stock market is headed for a bit of a valuation refresher (i.e., lower PE multiples), particularly if it is caused by somewhat higher inflation rates and rising bond yields, it may make sense to add a few materials stocks to the equity portfolio.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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