This article was first published in the Globe and Mail on March 9, 2024. It is being republished with permission.

by Tom Bradley

It’s a good time to be an investor. Stock markets are on a roll. The MSCI World Index is up 9 per cent year-to-date and more than 40 per cent since September, 2022.

Nobody knows what’s going to happen going forward. There are plenty of cross-currents. Depending on whom you ask, there’s going to be a soft or hard landing, interest rates are going back down or are now in a normal range, and valuations are just fine or historically high.

This combination of good markets and not knowing the future makes it a good time to do some work on your portfolio and set yourself up for the next few years. There are three reasons why I say this.

First, your process is less emotionally charged when things are going well. You have time to make rational decisions based on your long-term plan.

Second, you’re operating from a position of strength. You’re less likely to agonize about selling something that’s down or making a change to your asset mix because you’re not already behind the eight ball.

And third, it’s a time when investors go to sleep. It’s working, don’t fix it.

To be clear, I’m not a proponent of doing a lot of trading or fiddling with your portfolio. As the saying goes, a portfolio is like a bar of soap: The more you touch it, the smaller it gets. But there may still be a few things you can do to improve your chances of success.

Accumulating

If you are young and building your wealth, you have the least to do. You’re in the simplest stage of the investment cycle. You have time on your side, so the goal is to invest as much as you can, as early as you can. Automatic monthly contributions are your most effective investment tool.

The asset mix should be heavily equity-oriented because your portfolio has a multidecade time horizon. Without the ability to time the market, there’s only one thing to do: keep your foot on the gas.

Still, you may want to use contributions to reset the industry and geographic mix of your portfolio, especially given how well U.S. tech stocks have done.

Late career

If you have a balanced portfolio and are seeking steadier returns, you may have more to do. Your goal is to participate in strong markets while holding up better during the downdrafts.

While stocks have been good, bonds have lagged, which may have caused your asset mix to get out of whack. If your target mix calls for a certain percentage in bonds and you’re not there, then it’s time to make an adjustment.

Bonds inject income into the portfolio and, importantly, are great diversifiers. When stocks are dropping and sentiment is overwhelmingly negative, interest rates tend to drop, which causes bond prices to rise. For this reason, government and high-quality corporate bonds provide more downside protection than cash or GICs.

Keep in mind that current yields have historically been a reliable indicator of bond returns for the following 10 years. For that reason, we’ve increased our return expectations for bonds to 4 per cent to 6 per cent a year.

As for stocks, don’t make the mistake of extrapolating recent trends and increasing your return expectations. If you look at a long-term stock market chart, it trends up and to the right. There are periods when it runs hot and rises above trend, effectively borrowing returns from future years, and other times when it drops below trend, setting up supersized returns. The point is, through these ups and downs the trend line changes very little.

Retired

If you’re relying on your portfolio for a regular paycheque, you have the toughest job. You have two conflicting objectives. For a portion of your wealth, you must generate a steady income that isn’t dependent on market returns. Call it a spending reserve. With the other part, you need to earn a good long-term return to fund your retirement 10 to 20 years from now.

At Steadyhand, we have a Retirement Withdrawal Program that helps clients manage this balance. At its core is a simple premise: When markets have been good, we top up the reserve (typically two years of spending); conversely, when the long-term portfolio is down, we draw down the spending reserve (which is what it’s for). We’re not trying to be too precise, just approximately right.

Whatever stage you’re at, taking a little time to review your portfolio now, when you have the time and temperament, will help you fully benefit from the zigs and zags ahead.