It’s less than two months into the year, and the Nasdaq Composite is already up 6% while the S&P 500 is up 5.5%. This follows the Nasdaq’s 43% gain in 2023 and the S&P 500’s 24% gain.
With market indices reaching new all-time highs seemingly every day and stocks becoming more expensive, you may feel like you want to take your foot off the gas… but you don’t know how. Investors in that camp have come to the right place.
Protecting Market Gains
Here are five responsible moves you can make without overhauling your entire portfolio.
Image source: Getty Images.
1. Safeguarding Investments
If you want to avoid buying overpriced stocks, consider allocating new savings to safer investments. The S&P 500’s P/E ratio is 27.3, but many value-oriented sectors of the market, like energy, materials, utilities, consumer staples, and financials, still trade below the market average. Regularly saving takes the pressure off the need to sell a stock to buy a different one. For investors in the asset distribution phase, there are still plenty of moves to make.
2. Portfolio Diversification
Technology is the only sector that has outperformed the market over the last five years, with communication and consumer discretionary sectors also performing well. Overexposure to these sectors may leave you vulnerable to a market pullback. Review your portfolio and ensure it achieves the level of diversification needed to suit your risk tolerance.
3. Reevaluating Investment Theses
Instead of focusing solely on valuation, reevaluate the investment thesis of your concentrated stocks. Microsoft’s example shows how a company can be justified at a seemingly high P/E ratio due to a stronger investment thesis and growth prospects.
4. Cautions for High-Growth Stocks
Story stocks like Nvidia and Tesla carry a level of uncertainty in their valuations based on future growth. It’s essential to monitor when such stocks become overvalued, potentially requiring trimming from a portfolio.
5. Mitigating All-or-Nothing Decisions
The worst thing an investor can do is to sell their entire portfolio at the peak of the market. Historical data supports that every dip in the market turned out to be a worthwhile buying opportunity. The best way to invest is to build positions over time, rather than trading in and out of stocks or sectors.
Healthy Portfolio Exercises
If you’ve been investing long enough, chances are you’ve been through the roller coaster of emotions that come with market volatility. Put yourself in a position to stay level-headed by implementing measured and thoughtful portfolio moves. These ideas may lead you to make a few portfolio moves, but they shouldn’t result in a complete portfolio makeover.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Salesforce, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
