Stock Market at Record Highs, What to Do?

Markets fluctuate. That is not new news and, as we have all seen, some of the fluctuations can be severe. With many of the popular averages at or near record highs, there may be a perception that stocks are fully valued, or even over valued. Maybe.

Over the weekend, The Wall Street Journal, carried an interesting article by Jason Zweig, in which he suggested that “whether stocks are overvalued or fairly priced isn’t the question that investors should be asking. Instead, what you need to answer is this: How much can I stand to lose before I will bail out?”

Investing requires both a willingness and an ability to bear losses. Willingness is emotion, I call it the “tummy test” or, when will you be sufficiently worried to sell, even if it turns out to have been near the bottom. Ability is financial.

If you’re unsure as to where you stand, a simple test is; did you rebalance during the last big hit, did you stand pat or did you bail?

Hopefully, you and your advisor(s) had a measured discussion, during a period of relative market calm, about risk and investment objectives with a view to formulating a durable strategy. If, for example, your situation called for a 60% equity-40% fixed income mix, you should probably have been rebalancing periodically to add equity during market declines and to increase fixed income during a rising market.

The hardest time to invest is always now. If you have a realistic plan, you and your advisor(s) should, by following the road map, be in a good position to cope with market fluctuations without becoming consumed by near-term valuation issues.

While there is no such thing as a certainty, over time, markets have gone up and periodically reached new highs.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA