Stocks roared higher in a delayed relief rally on Thursday, following the Federal Reserve’s jumbo-sized interest rate cut Wednesday, but rocky times may be ahead – and investors will want to prepare for that volatility. Excitement over the central bank’s half-point rate cut lifted the S & P 500 over the 5,700 threshold for the first time ever on Thursday. However, Goldman Sachs warns that investors should buckle up for a potential bumpy ride in the market. “On average, over the past 30+ years, [the CBOE Volatility Index] has increased 6% from September to October, and we see upside risks to the current VIX levels given seasonality and upcoming macro/micro catalysts,” wrote analyst Arun Prakash in a Thursday report. Key catalysts that could shake up the markets include the third-quarters earnings that will be reported in October, the Nov. 5 general election and the final two Fed meetings of 2024, in November and December, Prakash’s team said. “Election years, especially leading up to the big vote in November, tend to be a little more volatile and this year has been no exception,” said Rafia Hasan, chief investment officer of San Francisco-based Perigon Wealth Management. Recalibrate for risk Protecting your portfolio from sharp losses begins with understanding your comfort with risk and ensuring that your asset allocation reflects your long-term goals. “Staying in your seat and keeping clients invested in those periods is very important, but so is structuring the portfolio in such a way that you recognize some clients might have a lower risk tolerance,” Hasan said. She has used a combination of tax loss harvesting and direct indexing – in which an investor’s portfolio holds individual stocks to mirror an index – to take advantage of shakier periods in the market. The benefit of direct indexing is that the investor can prune underlying stock holdings, whereas an index exchange traded fund acts as a whole basket of securities. By trimming falling positions, investors can harvest losses and use them to offset taxable capital gains elsewhere. To the extent losses exceed capital gains, investors can use them to offset up to $3,000 in ordinary income and carry forward losses above that for use in future years. “You saw this big drawdown on August 5, and after a couple of weeks the markets recovered,” Hasan said. “But over that period when markets were down, there were opportunities to harvest losses in stocks, individual names that experienced big…
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