What should your portfolio look like in 2024?

Key Points

• As the year winds down, investors should consider reviewing their portfolios, considering tax losses, and whether to let winners run or nab profits.
• A diversified portfolio spreads contributions across various asset classes, reducing the impact of poor performance in any single investment.
• J.P. Morgan sees potential returns across various asset classes as more promising than in over a decade.

With inflation easing, supply-chain disruptions largely a thing of the past, a presidential election and lower energy prices, 2024 could be a wild ride for the SPDR S&P 500 ETF Trust NYSEARCA: SPY and other major indexes.

As 2023 wraps up, many technology stocks, which were leaders this year, are now extended out of bases. For example, among the “Magnificent Seven” stocks, Alphabet Inc. NASDAQ: GOOGL, Apple Inc. NASDAQ: AAPL Microsoft Corp. NASDAQ: MSFT, Amazon Inc. NASDAQ: AMZN, Meta Platforms Inc. NASDAQ: META Nvidia Corp. NASDAQ: NVDA  and Tesla Inc. NASDAQ: TSLA, are collectively up about 75% this year. 

Does that mean these winners are overextended and ready for a correction, or that factors such as declining interest rates could lead them higher in 2024? 

The last couple weeks of 2023 should bring low trading volume, historically the case as a year winds down.

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For investors who haven’t already gotten their portfolios organized for the year ahead, now is a good time to review whether losing stocks should be sold to claim a tax loss, and whether to allow winners to run, or take some profits.

One year's winner could be the next year's loser

One factor to consider: A sector's performance in one year doesn't guarantee that will continue the same way in the next, either positive or negative. 

The broader tech sector, as tracked by the Technology Select Sector SPDR Fund NYSEARCA: XLK, has been the 2023 leader. If interest rates fall that could give tech a further boost in 2024. Techs tend to get slammed by higher interest rates, as their innovative projects tend to be expensive, and frequently entail borrowing. 

But it’s impossible to know ahead of time what factors will drive performance. That, of course, is why investors reap the rewards from being in the market, along with taking the risk of the unknown. 

Diversifying your 401(k) investments is crucial for managing risk and protecting your retirement savings. By spreading your contributions across a variety of asset classes such as stocks, bonds, and other securities, you reduce the impact of poor performance in any single investment on your overall portfolio.

While it may seem trite, a sound way to approach the new year is with a strategy of diversification, although that shouldn’t be confused with old-fashioned “buy and hold.” 

Ensure exposure to growth by diversifying

“Different asset classes may perform differently under different economic circumstances, and a well-diversified portfolio ensures that you have exposure to opportunities for growth, even in changing market environments,” Serge Berger, founder of investment advisory firm Blue Marlin Advisors, told MarketBeat. 

Over time, he added, market conditions and economic trends can shift, impacting the performance of different sectors. 

“Diversification allows you to adapt to these changes, ensuring that your retirement savings aren't overly dependent on the success or failure of any particular industry or type of investment,” he said.

For example, although energy was far and away the leading sector in 2022, while tech skidded, the situation was almost reversed in 2023. Energy is among the sectors suffering a loss this year.

Lower oil prices hurt energy sector 

According to research from U.S. Bank, “In 2023, oil prices were flat to lower, and energy stock performance followed suit. Today, prices across the energy sector are down significantly from 2022 peaks.”

Economic downturns, geopolitical events, and market volatility can have varying effects on different asset classes, said Berger. 

“A diversified portfolio provides a level of stability and resilience, helping to safeguard your retirement nest egg against unexpected challenges in the financial landscape,” he added.

Potential returns look promising in '24

Heading into 2024, analysts have high expectations. “To us, the potential returns across many asset classes seem more promising than they have been in over a decade,” said J.P. Morgan’s global investment strategy team, in a December report. 

One factor that J.P. Morgan and other advisors suggest investors take note of: Fixed income is returning as an investment consideration. Many investors focused on high growth are understandably more interested in stocks, but take a look at the iShares Core U.S. Aggregate Bond ETF NYSEARCA: AGG chart. 

You’ll see a strong uptrend that began in November; J.P. Morgan noted that November was the best month for U.S. core fixed income in 40 years.