It’s early days, and the Nasdaq Composite has already soared 6% since the beginning of the year, while the S&P 500 is up 5.5%. This follows on from the Nasdaq’s impressive 43% gain in 2023 and the S&P 500’s 24% increase.

With market benchmarks repeatedly reaching record highs and stock prices on the upswing, you might be considering taking your foot off the gas — but unsure how to proceed. If so, you’ve landed in the right place.

Here are five sound strategies to implement without a complete overhaul of your portfolio.

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1. Shift New Savings to Safer Investments

If you want to avoid purchasing overvalued stocks, consider allocating new savings to safer stocks. The S&P 500’s price-to-earnings (P/E) ratio stands at 27.3, but several value-oriented market sectors still trade below the average, such as energy, materials, utilities, consumer staples, and financials.

Building a portfolio over time involves regular saving and adding fresh cash to your account as much as picking the right stocks. Consistent saving alleviates the need to sell a stock to purchase another.

For investors in the asset distribution phase withdrawing from their savings, other moves are still viable.

2. Guard Against Overexposure to Specific Sectors

Over the last five years, only technology has outperformed the S&P 500, with communication (led by Meta Platforms and Alphabet) and consumer discretionary (led by Amazon and Tesla) also doing well. The market is being propelled upward by big tech. If you’re overly exposed to these sectors, you could be at risk of a market pullback. While companies are not perfectly correlated, a sell-off in Apple, Microsoft, and Nvidia would likely also impact other big tech stocks such as Adobe, Salesforce, and major chip players.

A common mistake is assuming diversity in a portfolio due to many different stocks when, in fact, weightings and allocation play a more crucial role. A portfolio may contain 100 stocks, but if 75% is concentrated in just a handful of companies, it is not as diversified as it seems.

A counterargument is always going with your highest conviction and best ideas. However, now is a good time to review your portfolio for the necessary diversification that aligns with your risk tolerance.

3. Reevaluate Investment Theses

If your portfolio is heavily concentrated in a specific sector or theme, you might question which stocks to consider selling. While valuation is important, the investment thesis holds greater significance. If the thesis remains intact or has become stronger, holding a stock may be prudent even after substantial appreciation.

Take Microsoft for instance. The company has surged 275% over the last five years to become the world’s most valuable, suggesting it might be overbought. Nonetheless, the investment thesis has strengthened, with higher margins and faster growth in its legacy and cloud businesses, as well as the substantial impact of artificial intelligence across its units.

Microsoft’s current 36.8 P/E ratio may seem elevated, but with potential earnings growth of 15% or more annually, the stock could become inexpensive relatively quickly. An annual growth rate of 15% results in a doubling of earnings in five years, and Microsoft might even outdo that average. This justifies the current valuation.

4. Caution Against “Story Stocks”

Nvidia was the top-performing stock in the S&P 500 in 2023, with a remarkable 49.2% gain so far this year, making it the best performer again in 2024. However, it has evolved into a story stock, where valuation is based on the company’s potential in the years to come rather than its likely performance in the short or medium term. Optimistic investors continue to buy due to anticipated growth without factoring in the uncertainty of lower-than-expected growth.

While numerous story stocks live up to the hype, many subsequently underperform the market as the substantial growth was already anticipated in the price. A case in point is Tesla, down approximately 50% from its all-time closing