Skeels Cygan: Financial guardrails for the new year

Happy new year!

My December article — “What goes up must come down...but when?” — led to numerous emails from readers. My favorite was:

“Well now that you scared the #%\* out of us, what do we do about it? A follow-up article is due!! We’re recently retired, own our home, and have an ample investment portfolio. PS: I have enjoyed your article for many years!”

I laughed out loud when I read the first sentence, and I greatly appreciated the last sentence. I realized the reader was right — how could I summarize the frightening events happening in the U.S. stock market in last month’s article (such as the enormous debt being generated to pay for AI and data centers) and not offer strategies to help protect individual investors?

I had planned on writing about small steps readers can take in the new year that can lead to financial security. However, after a bit of pondering, I realized the two topics overlap. Protecting yourself now from a potential near-term stock market correction includes many of the same strategies that wise investors use to attain financial security for life.

When a nosedive occurs, most investors have far less risk tolerance than they assume they have. Although you cannot fully protect your finances from downturns, being proactive will help you hold the course.

Below are five steps to consider.

1. Rebalance your portfolio (now). It is essential that you know what asset allocation you want to maintain in your investments. This is simply the percentage of equities (stock market) versus the percentage of fixed income (bonds, CDs, money market, cash). A common ratio for many investors is 60% equities and 40% fixed income. You may decide you want more or fewer equities than 60%. For retirees, who have fewer years to recover from a sharp downturn, I recommend being more conservative.

After strong U.S. stock market performance in 2023, 2024, and 2025, most investment portfolios are now heavy in equities if they have not been rebalanced at least once each year. Early in a new year is a great time to rebalance. In taxable accounts, this may require that you trigger some taxable gains, which is a better outcome than leaving an account too heavy in equities. For retirement accounts — traditional IRAs, Roth IRAs, 401(k)s — tax consequences are not a concern.

If you are feeling nervous about the current stock market, consider a small reduction in your equity percentage. When the year 2000 was about to begin (remember Y2K?), Harold Evensky, a widely respected financial adviser, recommended that his clients reduce their equity percentage. If they had been following a 50% equities, 50% fixed-income ratio, he recommended they shift to a 45% equity, 55% fixed-income ratio. A small shift like this will not have a major impact on your long-term investment performance, and it may help you sleep better at night.

2. Increase your savings percentage. Living within your means is a mainstay for attaining financial security, and increasing your savings percentage can be a shortcut that prevents you from needing to follow a strict budget. Are you saving the maximum amount allowed in your employer’s retirement account? If not, increase the percentage that is being swept automatically from your paycheck.

Are you eligible to fund a Roth IRA in 2026? If yes, you can contribute up to $7,500 a year if you are under 50, and $8,600 if you are over 50. The income limits for modified adjusted gross income, or MAGI, for the full contribution in 2026 are $153,000 for single persons and $242,000 for married filers. Two (of many) benefits of a Roth IRA are that the account will grow tax-free, and it does not require required minimum distributions during retirement.

Do you have an adequate emergency fund? Setting aside enough money to cover six months of living expenses is recommended. Keeping additional cash is always wise for unexpected expenses or to treat yourself occasionally.

3. Keep your equities diversified. Once upon a time, investing in an S&P 500 index fund was considered to be diversified. After all, you assumed you owned small amounts of 500 U.S. companies. Not anymore! Common S&P index funds — such as those offered by Vanguard, Schwab, and Fidelity — are weighted with the largest companies having the heaviest weight. Currently, over 30% of the S&P 500 is comprised of only the seven largest companies, and these are primarily technology companies. To avoid being too heavily invested in technology and the seven largest companies, consider investing in an equal-weight S&P 500 fund or exchange-traded fund, or ETF.

Or consider investing in international funds (or ETFs), value funds rather than growth funds, or in small-cap or mid-cap rather than large-cap funds. After lagging for many years, international equities outperformed U.S. equities in 2025.

4. Monitor the return on the fixed-income portion of your portfolio. Bond and CD yields have declined from a few years ago, but attractive yields are still available. Money market yields have also declined, so shopping around for the best yield is wise. Traditional banks sometimes offer attractive rates, but they also leave many customers’ cash sitting in savings accounts earning close to zero.

5. Look toward the future; have a plan. Don’t focus only on current events or bad news. When do you want to retire? If you are already retired, do you monitor your investing and spending? Are your estate planning documents current? Are you devoting enough time to your health?

Recognizing that money does not buy happiness, do you know what brings you joy? Perhaps it is family, friends, charity work, exercise, hobbies, travel or learning new things. How can you include more of those activities in your routine during 2026?

Donna Skeels Cygan, CFP®, MBA, is the author of “The Joy of Financial Security.” She owned a fee-only financial planning firm in Albuquerque for over 20 years before recently retiring. She welcomes emails from readers at donna@donnaskeelscygan.com.