Tech stocks are on a skyrocketing trajectory with no signs of stopping. There is a lot of speculation about a looming correction, especially with high AI spending across the board. While AI is the future, and data centres are drastically expanding, Investors are interested in the bottom line and looking for companies that are making profits from AI.
Tech has been dominating the S&P500 of late and historically speaking, and according to analysts, despite this bull market, there should be a tech stock market correction soon. This impending market correction could affect your portfolio and put it at risk, but on the upside, it could potentially offer investment opportunities.
Nigel Green, deVere CEO, shares his thoughts,
“A correction in technology stocks would not necessarily signal the end of the AI investment story. It could simply be the market demanding stronger evidence that earnings can keep pace with expectations….Markets periodically need to reset. A tech correction could be a healthy development if it removes speculation and refocuses attention on fundamentals.”
“Volatility in tech stocks should be expected. The sector is at the centre of one of the largest capital investment cycles in decades, and markets rarely price such change smoothly. Investors are no longer simply rewarding companies building AI products. Increasingly, they are concentrating capital into the firms controlling the infrastructure bottlenecks the entire AI economy depends on.”
It is advisable to chat with a financial adviser to review your portfolio and make any adjustments to ensure it is mitigated against possible losses. There are opportunities in sectors that are making profits from AI infrastructure, using AI or are needed by AI, like the energy sector (data centres need power), healthcare and defence tech, for example.
A market correction is typically defined as a decrease of at least 10% but less than 20% from the most recent high. Corrections are a common occurrence in financial markets and are considered a natural part of market cycles.
A potential correction could provide investors even more opportunities to build wealth with the right advice.
Corrections help stock markets maintain a balance by preventing excessive speculation and unsustainable price increases. They provide an opportunity for overvalued assets to readjust to more reasonable levels.
There is potential for investors to use corrections as opportunities to reassess their portfolios, reallocate assets, and position themselves for potential future growth. Many see corrections as buying opportunities, under the guidance of financial advice, especially if they believe the fundamentals of the assets remain strong.
“A correction is not the same as a crisis. Long-term investors often find that periods of market weakness create some of the best opportunities to build future wealth.”
Nigel Green shares his thoughts on the current market situation. He mentions that in light of the current risks, investors need to diversify. There is trouble brewing in the private debt market, with massive amounts of credit card debt piling up, AI companies having huge debt-financed capex, and energy prices are driving inflation higher. Something had got to give.
Watch Nigel’s video below:
UK Expat Retiree in Portugal — Reducing Equity Risk Before Correction
Client profile: British couple, ages 67 and 65. Resident in Portugal. Portfolio: €900,000. Retirement income dependent on investments.
Concern
The couple had a portfolio heavily weighted toward global equities after a strong market run. They were worried that a correction could happen just as they began drawing income.
Before
75% equities
15% bonds
10% cash
Strategy
A review might involve:
After
55% growth assets
30% defensive/income assets
15% liquidity reserve
Outcome
The portfolio became less dependent on selling equities during a downturn, helping protect retirement income.
Revise your Financial Portfolio
This is the process of reviewing a financial portfolio to optimise the composition of your portfolio and ensure that it is aligned with your financial goals and risk tolerance. This is ideal, especially when markets are volatile, and a correction is imminent.
Asset allocation – A portfolio usually consists of various assets like equities, cash, and bonds. A review allows for changing assets or increasing or decreasing the asset weighting according to financial goals. e.g., reallocation or selling assets that have increased in proportion to buy assets that have decreased in proportion to revert to the original asset allocation. This will benefit investment portfolios over the long term.
Financial risk management: Using rebalancing – Over time, the risk of a portfolio changes as certain assets increase in value more than others. This tips the balance and might put the portfolio into a higher or lower risk factor, affecting financial risk. This requires rebalancing or selling off some stocks to get back to the original risk profile of the investor, e.g. a portfolio has 60% equities and 40% bonds. Over time, the equities perform better, and their weighting increases the portfolio to a 70% 30% weighting, putting the portfolio into a high-risk category. The equities portion must be reduced until there is a 60% weighting again. This means selling off some equities or increasing the bond portion. An investor may prefer a balanced risk portfolio. As equities increase, it puts them into a higher risk or moderately aggressive investing category. The advisor must rebalance the aggressive portfolio back to a lower-risk, balanced portfolio that the investor prefers.
Build a “defensive layer” – Many investors use assets designed to reduce portfolio swings. Defensive assets may include: high-quality government bonds, investment-grade corporate bonds, cash deposits, money market funds, and defensive equity sectors.
The goal is not necessarily to maximise returns in a rising market, but to provide stability when markets fall.
Diversification – Basically, not carrying all your eggs in one basket. By increasing the diversity of an investment portfolio, the risk of loss is reduced. If one asset performs poorly, the other assets can absorb the loss. A portfolio concentrated in one market, sector, or theme can suffer heavily during a correction.
This means spreading the portfolio over different asset classes like equities, bonds and cash, regions like the US, Europe and Asia, and sectors like healthcare, tech, banking and defence. e.g. not all sectors are affected the same way, so if one sector underperforms, another might be doing well. Tech stock is booming, but commodities might be struggling.
Example:
A portfolio heavily weighted toward technology stocks may fall more sharply than a balanced global portfolio during a tech-led correction.
Jake McLaughlin of deVere Portugal explains that diversification remains essential, but it needs to be intentional. Investors should understand exactly what economic scenario each part of the portfolio is designed to address.
Buying opportunities – It is important to have a strategic mindset when buying stocks. Look for stocks that have fallen in value over the short term but are fundamentally strong and valued as reputable companies. Corrections force stock prices down, allowing you to buy more valuable stock for less.
While a market correction can be worrisome and stressful for investors, it can also create opportunities to buy good stocks at lower prices, which benefits long-term investing. Always chat with a financial adviser before making investment decisions.
Consider income-focused strategies (especially in retirement) – For retirees, portfolio protection often means creating an income floor. Possible sources include: state pension, company pension, annuities, bond income, dividend-paying investments, and rental income.
This can reduce the pressure to sell assets during a downturn.
Review tax efficiency – During volatile periods, tax planning can matter. Consider which accounts to draw from first, using available allowances, managing capital gains, and avoiding unnecessary taxable events. For people living internationally, cross-border tax rules can add complexity.
Stuart Homes, senior partner at deVere, shares his perspective on why deVere stays ahead of the curve by adapting to changing circumstances and using innovative solutions to deliver a sustainable, bespoke service to clients.
Protecting a portfolio against a market correction is usually less about trying to predict the exact top of the market and more about building resilience so you can withstand volatility and stay invested.
Remember: corrections are normal
Market corrections are a feature of investing, not necessarily a failure. A resilient portfolio is designed so that losses are manageable, income continues, and opportunities can be captured when markets recover.
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.
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