Help! The market is at a record high. What should I do?!
Yes, the market was trading in record territories, but things haven’t been as over-valued as they might have appeared. Corporate earnings are up, so while the price earnings ratios are high, they are not at “frothy” levels. However, we are certainly not surprised by the recent increase in volatility causing a market correction of close to 10 percent. So, what are the things you should be doing?
Review your anticipated cash needs that will be met from your investment portfolios over the next three to five years. This is a great time to raise cash for that new patio or big vacation you are thinking about taking in the next couple of years.
Make certain that you have realigned your portfolio. If you and your advisers have established that 60-40 stocks-tobonds ratio is appropriate for your risk tolerance, then make sure that’s where you are. Not only that, you should be reviewing this on at least an annual basis. Realigning means that you force yourself to sell things when they go up and buy when they are down. But note, this does not mean selling out of the position entirely. If your plan is for stocks to be 60 percent of your portfolio and there has been a 20 percent increase as there was in 2017, then likely stocks are now 72 percent of your portfolio. Realigning means that you’ll trim the positions down to 60 percent, not selling entirely. This means, in taxable accounts, you’ll have to pay capital gains taxes, but also that you have taken gains off the table and put in other types of investments.
Reassess your overall long-term goals and objectives. If these things have not changed then it is unlikely that your targeted asset mix, in this example 60 percent stocks and 40 percent bonds, has not changed. If your objectives and/ or personal situation have changed then now is a great time to reassess your risk tolerances and your overall asset allocation.
Sadly, most investors don’t obtain the longer-term market rates of return. This is because most investors don’t have the intestinal fortitude to weather significant market declines. We definitely are not market timers, but we do believe this is an excellent time to assess your cash needs and raise cash, if needed, for the next few years as well as look at your risk tolerances and long-term goals.
By having the cash available to meet your needs, you won’t be forced to sell equities in a down market. Hang in there, baby!
Sharon Pryse is the founder and CEO of The Trust Company and can be reached at email@example.com.