There has been a lot of press lately regarding the Dow Jones Industrial Average reaching all time highs. A question that we get quite often is what should I do? Some people are afraid of impending doom and want to sell. Others see the stock market going up recently and want to take part. Our answer is:
Most likely nothing.
We stress long term planning using discipline. The Dow has reached plenty of milestones during its history......100, 1000, 5000, 10,000, etc. If you have money invested that you may need in the next several years, the stock market may not be the best place for it. This has nothing to do with valuation, it is simply time horizon. We recommend a 5 year time frame or longer for equity investments.
It might be a good time to revisit your risk profile. This doesn't mean just to get more aggressive and purchase stocks because they are hot. This means go back and see what you were trying to accomplish when you originally invested. Are your goals still the same? Has your time horizon changed? Are you on track to reach your goals? Are you closer to retirement? If there has been a major change in your life, or you are getting closer to retirement, you may want to re-evaluate your investment strategy. Please note, although it may be good to do so in an up market, you should not change your entire strategy and philosophy just because the stock market is up.
You may want to use this opportunity to rebalance your portfolio. We typically do this on a quarterly basis. If you have not rebalanced, your original investment may not be what you originally intended. For example, if you had a portfolio consisting of 60% stocks and 40% bonds, given the rise in prices of stocks it may now be 65% stocks 35% bonds. You may consider selling stocks (and purchasing bonds) to bring your portfolio back to the 60%/40% mix that you originally intended on having. Otherwise, your portfolio could have more risk than you are comfortable with.
In conclusion, although it is nice to see a rising equity market, we do not recommend taking action over headlines. If anything, stop in and visit us and have a conversation about your long term plans and we can make recommendations accordingly. We do not recommend buying or selling just based on the Dow Jones Industrial Average reaching a meaningless milestone.
Investments are subject to market risks including the potential loss of principal invested. Asset allocation and diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses. Dow Jones Industrial Average is unmanaged and measures broad market performance. It is not possible to invest directly in an index.