It’s time for a mid-year review of finances. Here are some thoughts for closing out 2024

Mid-year is a crucial juncture for you to take control of your investments and ensure they are in line with your long-term financial plan and any short-term financial needs. Conducting a review every six months is a wise practice. Doing it more frequently might lead to unnecessary changes due to market noise, economic fluctuations and news distractions. On the other hand, delaying it could result in a significant deviation from your target balance of stocks and bonds.

As you review your investments, keep in mind three topics that have been prominent lately and might be due for change. The dominance of large U.S. growth stocks, subdued stock market volatility and the role of cash compared to bonds likely will be relevant to your portfolio in the second half of the year.

U.S. growth stocks have been the front runners in terms of returns for the past 18 months. They had to regain their market leadership just to catch up with value stocks, which fared better during the challenging conditions of 2022. The impressive gains of growth stocks might be a pleasant sight in your account balance, but they should be approached with caution. In the broad U.S. stock market, large company growth stocks account for about a third of the total market value. That segment of the market started in July with a high price tag. Large growth stocks were trading at a 50 percent premium compared to their 20-year average price/earnings ratio. Unless company earnings exceed expectations, future returns from growth stocks are projected to be relatively low due to their high prices.

Value stocks, the counterpart of growth, featuring companies that might not have the same ability to grow their profits but that do more substantially pay back shareholders with dividends, are relatively more attractive. They are not trading at screaming-buy prices, but they are less overvalued than their own history and much cheaper than growth stocks, meaning their future returns are projected to be higher than growth stocks.

Vanguard is one of many investment managers that endeavors to forecast future return cycles. The Vanguard Capital Markets Model has a 10-year projected return (50th percentile of all modeled outcomes) of 1.4 percent for U.S. growth stocks and 5.1 percent for U.S. value stocks. The models and market history suggest this would be a poor time to trade out of value stocks to chase the performance of tech, artificial intelligence or other recently high-flying themes.

Instead of succumbing to the YOLO (you only live once) investing philosophy and investing heavily in trending stocks or sectors, you might find it more beneficial to exercise some caution. That could involve adopting a defensive stance in stocks or even rebalancing your portfolio by reducing your stock holdings. If history is any indication, we can expect more volatility in the stock market in the second half of the year. Since 1980, the average intra-year downturn for the S&P 500 Index has been 14.2 percent. Even in strongly positive years, returns typically experience at least one period of decline. So far this year, the largest decline for the S&P 500 was a 5 percent dip in April. Only seven of the past 44 years have had an intra-year maximum drawdown of 5 percent or less.

Outside of stocks, investors hold a far-and-away all-time-high $6.45 trillion in money-market funds. They present a nice parking place for savings with generally risk-free annualized interest of around 5 percent. If you are strategically holding money-market funds, CDs, or short-term U.S. Treasury bills as an alternative to holding bonds in a long-term portfolio position, market conditions and expectations of future interest rate direction suggest that it might be worthwhile to begin a shift back to bonds.

Inflation has eased (especially outside the United States but meaningfully here). Economic growth appears to be slowing and labor markets have softened a bit. That has led central banks abroad to begin reducing interest rates. The United States could follow suit later this year. Lower interest rates would immediately impact cash equivalent savings. Bonds, however, could receive a boost in returns by adding some capital appreciation (value growth) to their existing income payments. That has been a long-awaited shift. It might be difficult to move away from 5 percent interest on basic savings to accept some risk. You should only do it if you expect to be compensated well for accepting the risk. In that case, a gradual shift to intermediate-term bonds, perhaps emphasizing investment-grade corporate bonds, could add enough extra compensation to make the small shift worthwhile.

Gary Brooks is a Certified Financial Planner and partner at Mission Wealth ( www.missionwealth.com ), a registered investment adviser in Gig Harbor.