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The bear market seems to have bottomed, but in this investment environment, nothing is certain. Follow these essential steps, to build a portfolio that can survive potential shocks in 2023.

• Create Your Personal Mission Statement

Define your goals and create a time horizon to attain those goals. Are you saving for your kids’ college? For retirement? To buy a home? To retire early? Define your portfolio’s purpose.

Set a target date and the desired overall end amount. What’s your self-imposed requirement for a minimum rate of return? If your overriding goal is retirement, set a specific date to retire, and assess your future spending needs.

• Define Your Style/Strategy

Categories to consider include income; growth; conservative; aggressive; active; passive; buy-and-hold; frequent trader.

A key factor to consider is your stage of life. For example: relative youth (aggressive growth); middle age (moderately aggressive); retirement in the next 10 years (income and moderately conservative); retired (stability and income). Your style/strategy should match your mission statement.

• Devise Risk Management Tactics

Determine your tolerance for risk (a determination that flows from Pillar #2) and create ways to mitigate that risk.

Tactics include asset allocation; diversification; dollar cost averaging; position sizing; supplemental options trades (e.g., covered calls); hedges; rebalancing.

• Do Your Homework

Conduct due diligence; apply the basic tools of investment research; seek out the advice and guidance of credible analysts (that’s where we come in).

Which investment-picking metrics will you apply (e.g., valuation tools such as price-to-earnings ratios). Which research services/data providers will you use?

• Control Your Emotions

As long-term market history amply shows, you’ll have to withstand a lot of bumps along the way to reach your goals. Ride out volatility; keep your eye on the long term; don’t give in to fear and greed; don’t be impulsive; don’t succumb to self-delusion; don’t get rattled by news headlines; stick to the facts and stick to your mission statement.

• Create a Legacy for Your Heirs

If you don’t take measures ahead of time, Uncle Sam will take a huge bites out of your inheritance via the capital gains tax. Your heirs will suffer. Devise an estate plan, with designated beneficiaries.

Allocation Scenarios

Here are general “Allocation Scenarios,” which you can tweak according to your specific situation:

Allocation Scenario #1: STABILITY (conservative)

Money Market: 85%

Bonds: 15%

Allocation Scenario #2: INCOME (moderately conservative)

Bonds: 60%

International Stocks: 30%

U.S. Stocks: 5%

REITs: 5%

Allocation Scenario #3: MODERATE INCOME (defensive):

Bonds: 60%

Money Market: 20%

U.S. Stocks: 10%

REITs: 5%

International Stocks: 5%

Allocation Scenario #4: GROWTH AND INCOME (moderately aggressive):

U.S. Stocks: 45%

Bonds: 20%

International Stocks: 15%

REITs: 10%

Money Market: 10%

Allocation Scenario #5: GROWTH (aggressive):

U.S. Stocks: 50%

International Stocks: 20%

REITs: 15%

Bonds: 10%

Money Market: 5%

As 2023 and all its uncertainties loom before us, you should consider re-balancing your portfolio to accommodate the likely economic, business and market trends of the coming year.

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John Persinos is the editorial director of Investing Daily.

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