Have you ever tried doing something difficult, like going for a run, feeling like you had been going forever, then looking down at your watch and realizing you are just about halfway through the task or workout? That’s what 2025 feels like so far.
How Are You Feeling?
Now is a good time to ask yourself how market action year-to-date has impacted your emotions. When you turned on the evening news and saw another drop in the stock market, were you agitated or indifferent?
Did the word tariff make you cringe? If a friend asked how your portfolio was doing, did you feel a nervous breakdown coming on?
Did a short-term cash need cause you to sell investments while the stock market was down? Did you use a credit card to cover bills and throw off your monthly or household budget because of stock market volatility?
What Your Reactions Reveal
The answers to these questions reveal a great deal about whether your portfolio is correctly aligned with your risk tolerance and cash-flow needs.
It’s easy to select aggressive answers on a risk questionnaire or choose investments with the highest past returns. However, living through the volatility required to earn those stock market returns is another story. We may think we’re comfortable with risk, but the reality — emotional and financial — is a different story.
It’s likely that many investors’ allocations or portfolios no longer reflect the risk profile they originally set. We haven’t had a significant economic slowdown since the Great Recession of 2007-2009, and most corrections since then have been followed by quick recoveries. That may have led many to overweight stocks and underweight bonds and cash.
Reassess Mid-Year
Mid-year is a great time to sit down with your CFP® professional to complete a new risk tolerance questionnaire and compare it to your original. Take a fresh look at your current asset mix.
Also, review the amount of cash you may need to cover expenses over the next year or two, and set it aside in a money-market account or high-yield savings account. Few things are worse for a financial plan than being forced to sell portfolio investments when asset prices are at a low.
Tax-Planning Opportunity
While it may feel like you just finished filing your taxes last season, it is never too soon to start tax planning. Even though, as of this writing, markets have nearly recovered year-to-date, indexes remain off their highs and some individual positions are still down significantly. This creates a window for tax-loss harvesting — the strategy of selling investments at a loss to offset capital gains or reduce ordinary income (up to $3,000 annually).
Selling doesn’t mean abandoning your investment strategy. For example, if you bought Apple at the start of the year, your investment would be down year-to-date roughly 15%. You could sell it to capture the tax loss and later buy an exchange-traded fund (ETF) that tracks Standard & Poor’s 500-stock index (S&P 500) — or go more targeted with a tech-focused ETF. (Taxpayers should be mindful of the wash-sale rule when selling stocks at a loss and reinvesting the proceeds.) The performance won’t be identical, but the risk/return profile remains aligned — unlike switching to bonds or cash.
As we reach the midpoint of the year, much like that halfway mark in a long run, our endurance has been tested. Did we perform as expected?
If not, don’t wait for more market volatility to act. A proactive approach now, including consulting with a CERTIFIED FINANCIAL PLANNER® professional, can make all the difference. Find your CFP® professional today at LetsMakeAPlan.org.
Get started on securing your financial future today
Find a CFP® professional