How to Fix Your Investment Portfolio

Stocks have been in a bull market since bottoming out five years ago, but they are rolling over. I have been cautious for quite some time and remain so. Today, I want to discuss what's going on and what investors should do. This piece goes beyond just stocks.

What Is Going On

A 20% decline in an index typically defines the term bear market, and stocks may be in a bear market. Starting the year at 586.08, the SPDR S&P 500 ETF (SPY), currently at 526.41, has dropped 10.2% in price year-to-date. From its peak, it is down 14.1%. It has yet to close during any day in April at down 20%, though it did trade there earlier this month during the day. On April 7th, it posted a low of 481.80, which was a 52-week low that was down from the all-time high of 613.23 set on February 19th. This was a massive 31.7% plunge.

The sharp move lower coincided with the Trump Tariffs, which weren't exactly a surprise but were perceived very negatively. I discussed this on this blog on 4/6, discussing how stocks are not so magnificent. As I explained there, the USA faces a lot of problems, mainly the massive federal debt. I discussed that the Federal Reserve Board may not cut rates further. Now, President Trump is highly agitated with Federal Reserve Board Chairman, Jerome Powell. He discussed this week that he should be terminated immediately, though some of his aides have pushed back.

There is more to the market than just the S&P 500. Here are some widely followed indices on a year-to-date basis:

None of these are currently down 20% year-to-date, but the Russell 2000 ETF (IWM) has dropped by 18.9% from its peak earlier this year, and the Invesco QQQ Trust (QQQ) has dropped 17.7% from its peak.

Looking at each of these over the past 5 years shows that they have been in a big bull market:

Taking a look over the past 16 years (since 3/9/09, when stocks ended their prior bear market), the moves have been even more powerful:

The NASDAQ 100 has soared well beyond the broader indices, rising 16X. Larger stocks, as represented by SPY, have outpaced smaller stocks, as represented by IWM.

On the other hand, over the past three years, IWM has declined, and the annualized growth of SPY has been just 6.3%:

Interest rates have been very volatile too. Since that piece on 4/6, when I expressed surprise that rates were falling, they have increased a lot. The 2-year Treasury has increased from 3.64% to 3.80%, and the 30-year Treasury has increased from 4.41% to 4.80%. Going back to the end of 2024, the 2-year has decreased from 4.24% (44 basis points), while the 30-year has increased from 4.78% (2 basis points). 30-year mortgages have increased too over the past two weeks, currently at 6.83% as of 4/17 according to Freddie Mac. The Federal Reserve Bank of St. Louis publishes an index of corporate bond spreads that shows that corporate debt interest rates have increased relative to Treasuries:

While spreads spiked to a 52-week high, they remain well below the peak in 2022 and substantially below the spike at the beginning of the pandemic and even further below the peak in 2009:

What Could Happen

Stocks are falling, though they could bounce. In that piece two weeks ago, I stated my bullishness in the short-term on IWM. I also said that I was long 14 stocks. I no longer own IWM after taking a smaller-than-expected profit, and I have reduced the number of stocks I am long to just 7. I have boosted my exposure to lower stock prices and to lower gold prices, and I own TIPS too.

Many who supported Trump for President have lost confidence in him as a leader, and this could lead to more chaos. I have shared before that there is a lot of downside potentially to stocks, which remains the case. Further, interest rates could continue to rise, especially if inflation increases, as many fear. As I have discussed in the past here, many believe rates are already high, but I don't think that is really the case. For younger people, it may appear to be the case, but they were so much higher in the 1980s. Inflation was dead. In fact, we were facing a deflation risk. Now, though, it seems to be alive and could increase a lot due to the tariffs or loss of confidence by foreign countries that hold a large amount of our debt.

What to Do

I am a self-directed investor, but I understand that many are not. I will share my views on what self-directed investors should potentially do, but first I would like to address those of you who rely upon brokers or investment advisors.

Investors with Advisors

Investment advisers are human. I used to work professionally as one after working on Wall Street. In general, they may know more than their clients, but they can't predict the future. Some brokers and some managers are inept, and some are even criminal. The government regulates the industry, and I look at reports by FINRA, a self-regulatory organization that is almost 100 years old. They run BrokerCheck, and one should make sure that the person handling their money hasn't had any violations or understand what they have done.

Most brokers and investment managers don't "beat the market" despite their efforts. Those who have an adviser should understand better their performance. I created a website in late 2022, The Investing Mode, that aimed to . For those that want to learn more about investing with an adviser, there are several articles there.

Investors Who Are Self-Directed

Investing on one's own can be fun and productive, but it can also be risky! It's not always easy. For those who agree with me that stocks are risky, there are tax considerations. Selling stocks that have increased substantially can bring large capital gains taxes.

Here I break down my ideas by asset type

Stocks

I am quite negative on stocks. I have been most concerned about large-cap, where the bigger gains have come. Again, the S&P 500 has gotten extremely undiversified. I wrote about the Magnificent 7 two weeks ago. Updating the returns year-to-date, each is down more than the S&P 500:

Technology stocks were boosted dramatically, and these seem at risk. This is what most of the Magnificent 7 are. Artificial intelligence (AI) is big, but it is not clear to me that investors can make easy money. I warned here about some big ones last year. So, the first thing I recommend is selling these stocks or shorting them. One can also short QQQ. I don't actively trade options, but selling calls could make sense or perhaps buying puts.

One sector of the S&P 500 that frightens me is the Financials. Financial Select Sector SPDR (XLF) is down just 3.5% year-to-date, but it could drop a lot. Over the past 5 years, it has rallied 108%, which is more than the S&P 500. It has exceeded even the NASDAQ 100! Over the past three years too:

I am short XLF through inverse leveraged ETFs. I recommend reducing exposure to the very large banks or the sector overall, though I like T. Rowe Price Group (TROW), which has declined by 29.3% over the past three years and is down 22.8% in 2025.

So, big picture, I suggest reducing exposure to stocks. I am especially concerned about Financials and Technology. I have written about REITs here before and follow 4 closely. I don't own any currently and feel like the sector has been loved too much and too popular with investors for too long. A big REIT ETF by iShares, IYR, which is down just 1.2% year-to-date. Perhaps it has been helped by shorter-term interest rates falling. Over the past 3 years, the price has declined 15%, and over the past 5 years, it has gained 20.8%. If interest-rates increase or if we have a recession, things could get worse.

Bonds

I started my career in bonds, but I am certainly no expert. Above, I pointed out that many people, especially younger ones, think rates are high, but I think they could rise a lot. Here is the yield of the 10-year Treasury over the past 45 years:

While the 10-year has spiked since it bottomed in 2020, it's lower than it was at the end of 1999. It's a lot lower than it was in 1987, when stocks crashed. This has become a big focus on President Trump, as he and his team understand the refinancing risk that the federal government faces.

I like cash, currently yielding more than the 2-year Treasury and the 5-year Treasury, and I also like Treasury Inflation-Protected Securities (TIPS). I have written some articles at Seeking Alpha and own PIMCO 15+ Year US TIPS Index ETF (LTPZ). That can be compared to the popular iShares 20+ year Treasury Bond ETF (TLT). The total returns have tracked over the past almost 16 years since LTPZ launched:

I compared this ETF to two shorter-focused ones, the iShares 0-5 Year TIPS Bond ETF (STIP), which I own in the charitable fund, and iShares TIPS Bond ETF (TIP) and to cash. Over the past 5 years, which one stands out?

LTPZ has way underperformed cash, while TIP has underperformed too. I think that the steepening of the yield curve for regular Treasuries has impacted, and I also believe that the big run-up in 2021 on it is weighing on investors who liked it. Do you see the reverse-head-and-shoulders formation?

A final chart on LTPZ is compared to gold as measured by the SPDR Gold Shares (GLD):

Gold has been flying! Why? I think fears of inflation. TIPS aren't flying, though they are supposed to protect against inflation. I like LTPZ, and I love ProShares UltraShort Gold (GLL), which is double-short GLD.

Real Estate

When it comes to investing stocks and bonds are the main things we think about, but many of us own homes too. I am certainly no real estate expert, but I am concerned that home prices could be at risk. First, if the economy weakens, it will lead to job loss. Second, if interest rates rise, it will make it harder to afford. Sure, inflation could lead to housing prices going up, but if stocks are falling, people may want to sell their houses to buy the "cheap" stocks, lol.

Conclusion

In my lifetime, there have been several periods of volatility, and I think that this is just the latest one finally! The pandemic created a lot of problems, but the comeback did too. There is a big problem that remains, and it is only partially related to the pandemic. massive federal debt.

It remains unclear how things will play out, but I am bearish on stocks and worried about interest-rates. I weighed in negatively on gold too after it has soared.

Buy and Hold is being tested! Active investors should sell or hedge, and those who have their funds managed should make sure that their advisors are acting in their best interests. Best of luck to all of us!