The recent bull market has been a boon for investors, but the question now is how to preserve those gains. History has shown that stock market booms don't last forever, and the current market is no exception. The S&P 500 and TSX Composite Index have both surged to record highs, but it's important to remember that these returns are historically unusual. The market's performance over the past five years has been outstanding, but it's also been expensive. Share prices are now at some of their most expensive valuations on record, measured against underlying sales, long-term earnings, or dividends. This raises a deeper question: what should investors do to protect themselves against a potential market downturn? Personally, I think that the key is to assess your risk tolerance and adjust your portfolio accordingly. If you're in or near retirement and would be devastated by a significant loss in your portfolio, it might be wise to dial back on risk. This could mean building a cushion of cash or bonds to help carry you through any rough patch. In my opinion, the recent AI boom has also contributed to the market's volatility, and it's important to consider the risks associated with this sector. Goldman Sachs has suggested that investors look to real assets such as infrastructure, prime real estate, energy, or gold, as well as diversifying into dividend stocks and value stocks. Some investors might also want to consider bonds or guaranteed investment certificates, which offer a more conservative approach. For those who want to stick to stocks, the Avantis CIBC All-Equity Asset Allocation ETF or Berkshire Hathaway Inc. shares might be a good option. Ultimately, the key is to be proactive and consider your risk tolerance and investment goals. The market may be volatile, but with the right approach, it's possible to preserve your gains and navigate the challenges ahead.
