By Gerald Robinson, CFP®
Investing is never completely straightforward. However, a close look at the current mid-year market update shows us that even for seasoned investors, things are (probably) going to be a little turbulent for a while.
If you’ve been in the game for any length of time, you might also be getting a little sense of déjà vu—current market conditions are a lot like those in 1999 leading into 2000. That was the beginning of a three-year drop, but we can hope that this time around, the market is much more resilient.
At any rate, it’s time to start financial planning for change, and that starts with gaining an understanding of what the market looks like now—and what that means for the future.
“Tech Euphoria” and a Changing Market
You know that if you want a stable portfolio, you need to diversify it across investment types, different sectors, and different companies. But what happens if the market itself isn’t diversified enough?
That might sound absurd, but it’s exactly what’s happening. The “Magnificent Seven”—Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA)—comprise 31% of the S&P 500, and that percentage is growing. We’re seeing the fastest increase in market concentration since 1950, and that’s simply not sustainable.
Of course, the Magnificent Seven have a lot in common, and their success is being driven by the current spirit of “tech euphoria.” When these top stocks are doing as well as they are now, it’s a good thing for returns.
But because so much of the S&P 500’s growth is concentrated in a handful of stocks as of this mid-year market update, a downturn or drop in value of just one company could cause trouble for a lot of investors.
What the Mid-Year Market Update Means for Your Investments
The mid-year market update shows us our economy is at a crossroads. The Magnificent Seven and other tech stocks can’t continue to grow at the rates we’re seeing now. The good news is that we’re unlikely to see one of these companies go bankrupt or otherwise see a drastic drop in value, so we’ll probably see slowed growth (as opposed to precipitous drops) going forward.
Because of how concentrated the market has become, slowing growth is likely to lead to volatility. It’s not the only factor either: uncertainty around the United States presidential election, changes in central bank policies, and worldwide geopolitical tensions are already beginning to destabilize the market.
That might sound bleak. But when it comes to stocks, there’s no need to panic. The best course of action is to focus on risk management and keep an eye out for the opportunities that come with market corrections.
Now is also a good time to focus on bonds and money market funds. Currently, returns are above 5%, so adding a few quality bonds to your portfolio can be a great way to generate reliable, long-term income.
Of course, these predictions can change—that goes with the territory of market volatility. Risk management is vital in this scenario, but so is vigilance!
Your Guide Through an Uncertain Market
A volatile market like the one suggested by this mid-year market update can put your portfolio in jeopardy. And while there are no guarantees in the investing world, an experienced financial advisor with a long-term focus can help you develop a strategy to keep your portfolio stable—and possibly even promote growth—as you weather a changing market.
LightForce Financial can give you the one-on-one service and support you deserve. Because we are a fee-only firm, our advisors don’t make commissions from specific investments. That means our recommendations are made with your best interests in mind. To schedule an introductory meeting, fill out our contact form, call (817) 896-2744, email gerald@lightforcefinancial.com, or select an appointment online.
About Gerald
Gerald Robinson is Founder of LightForce Financial, a fee-only financial services firm based in Denton County, Texas, specializing in guiding multi-generational families and small and mid-sized business owners through the inevitable—change. Gerald and his firm provide one-on-one service and a long-term approach to goal achievement. He’s fulfilled by developing long-term relationships with clients as he helps align their wealth and values through a personalized financial plan.
After graduating with a BBA with a focus on finance and statistics from UNT, while serving in the United States Marine Corp Reserve, Gerald began a long career in mid-management of a large retail food chain. In 1999, with the desire to serve clients by building a business that would be of value and positively impact their lives, he returned to his roots and began his journey as a financial professional. In 2009, Gerald acquired his CERTIFIED FINANCIAL PLANNER™ designation, and now serves clients as an independent CFP® professional on a fee-only basis—no commissions. For over 30 years, Gerald has lived in Flower Mound with his wife; he also has three children and five grandchildren. In his spare time, he enjoys staying involved in his community, serving on various commissions and boards. To learn more about Gerald, connect with him on LinkedIn.
This presentation is not an offer or a solicitation to buy or sell securities. The information
contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website.
Past performance is not a guarantee of future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. Registration with the SEC does not imply a certain level of skill or training.