You can tell we’re in the dog days of summer simply by watching the “Dog Star,” Sirius, rise with the morning sun. But if that’s not a good enough indicator (or if you don’t have a powerful enough telescope), you might just look toward stocks for confirmation.
Q2 earnings are starting to slow to a trickle, and chances are your office is starting to thin out as vacations mount. Well, that’s happening on Wall Street, too — volume is weakening in the late summer months, though the traditional accompanying volatility is luckily nowhere yet to be found.
Chances are you’ve got a little off time available for yourself, and if so, I highly suggest taking a little of it to do some retirement-planning activities.
Cull Some Winners
Open up your latest statement, or log into your brokerage account, and look to see which stocks are beating the pants off the market — no easy task considering just how well the market is doing. The S&P 500 is up about 18% year-to-date.
However, talk about Federal Reserve “tapering” of its bond-buying program still is a touchy subject, and should it happen, we at least run the risk of a big, broad swing down — which means it might be time to take some of your money and run. A few for-instances:
Banks and Financials: This sector has soared, led by big names such as American Express (AXP, +31%), Bank of America (BAC, +24%), and Wells Fargo (WFC, +26%). Banks have been swimming in profits thanks in part to low borrowing rates available at the Fed, while AXP’s taken advantage of increased consumer spending. A rise in interest rates could affect both, so I would keep an eye on rate movements.
Tech: Tech broadly isn’t in trouble, but we’ve seen huge momentum in stocks such as Tesla (TSLA), Facebook (FB) and Groupon (GRPN), and momentum often gets crushed in a broader-market sweep.
Take Out the Trash
The opposite of taking out your winners is taking out the trash. Sure, no one likes to admit they messed up a pick, but inaction can be more harmful to your portfolio than helpful, so take a look at your losers and see why they’re down and out.
I am fairly bearish on the manufacturing sector — and in particular, big machinery names like Caterpillar (CAT) and Joy Global (JOY). Both are down year-to-date (Joy especially is getting pummeled at -40%) and have little upside visible to this point as the global economy merely putters along and commodity prices remain soft. Also, Deere (DE) reported better-than-expected earnings Wednesday, but warned about softness in farm revenue for the remainder of the year thanks to lower corn prices and capital spending by farmers.
Always remember to look at your holdings like you’re just buying them today. Would you buy Joy Global if you didn’t already hold it? If not, cut bait and put your money somewhere you expect it to grow.
Dive Into Your 401k
In addition to taking care of your individual stocks, take a broader look at your portfolio mix in your 401k.
Right now I am at around 57% stocks/41% bonds with the rest in money funds. I was closer to a nice even 50/50 split earlier in the year, but the market moved ahead while bond prices sank. I’m still comfortable with the current mix, but only because I think bonds will be a lot worse off than stocks as the Fed continues to jaw one way or another on QE.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he did not hold a position in any of the aforementioned securities.
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