The market is hot right now – to say the least. We all know it’s cyclical in nature so in a way it feels like we’re just waiting on the inevitable downturn: we just don’t know when, and we don’t know by how much. At current valuation levels, both domestic and international, we are well beyond what anyone expected or forecast.
Shouldn’t we do Something?
Maybe, but probably not; certainly not anything drastic. Here are my thoughts:
- Attitude of Gratitude. I’m terrible when it comes to this….always thinking and planning for the worst. In my defense, it’s part of my job description, but still, I think we need to be VERY grateful for the returns we have received over this extended bull market run. We’ve all been permanently influenced by the Great Recession. I believe this phenomenal period of market return will also be a marker for defining what we can achieve going forward in our financial lives. Savor it. We make better decisions from a position of gratitude.
- Planning-based decisions vs. market-based decisions. If you are considering a change in your portfolio, it should be based upon planning considerations and not market valuations. That being said, the recent market activity has possibly affected your financial plans….in a good way. For example; a retirement plan that barely worked three years ago may have a very high probability of success now. In cases like this, we sometimes can increase the probability of success to an even greater level by now adjusting the portfolio to a safer position. We just went through this exercise with many of our clients. This is a way of taking profits smartly at high valuation levels, but based upon sound planning; not market timing. Review your financial plan first and then adjust accordingly.
- Don’t chase other people’s success. You have probably experienced great returns in your portfolio, but there are others around you who are loudly experiencing even greater success. Good for them! Their decision to load up on higher risk securities has paid off as it often does in good times. Make sure and congratulate them now, because you won’t hear a word from them when things turn. It’s as much a part of human nature to brag about our accomplishments as it is to be envious of those who do the bragging. Stay grounded and carefully review your risk exposure to make sure it aligns with YOUR goals and dreams, not somebody else’s.
- Don’t cash in all of your chips. It’s tempting to take our profits where they stand, cash out, and wait for the market to turn, but I believe cashing in at all time highs is almost as bad as cashing out at all time lows for the same two reasons:
1. Nobody can accurately predict future market movements, so your decision to go to cash will always be based upon bad information.
2. It’s not one decision; rather it’s always two decisions. The decision to go to cash is the first one, followed by the decision to invest back in the market. Think of it as two flips of the coin, both needing to fall “heads” in order to win.
I’m not into flipping coins on the financial future of my family or the dreams and aspirations of my clients, so we always stay invested. Understand, this is not a conservative approach, it’s just common sense. To be successful, I believe we must maintain a disciplined, long-term mindset. It’s important to recognize that it’s almost as hard to manage our attitude and emotions at all time high market levels as it is when stocks are declining. As always, I’m happy to help you navigate the path to achieving your financial goals. Please don’t hesitate to contact me.
Stay invested, my friends!