If you read the news yesterday morning, you may have seen that all US stock indexes posted all-time highs at the close of business Friday. This puts us at almost 11 years’ of stock market growth since the low of early 2009 and is the longest period of economic expansion in US history. Should doctors be worried about their investment accounts?
There is a reason that all investment disclosures read “past performance is not a guarantee of future results”. The reality is that no one knows what the market is going to do. Just because a period of growth like this hasn’t historically continued doesn’t mean that it won’t this time.
Personally, I believe it’s unlikely that we won’t experience a pull back in the next few years, but I’m not selling anything. Why not? Because there’s no way to know for sure.
Consider this: if an investor moved to cash 3 years ago (after 7 years of economic growth, which was widely regarded to be the average expansion period), they would have missed out on over 40% of aggregate returns if invested in the S&P 500. On a $100,000 account, that’s $40,000 of missed opportunity… I don’t know about you, but that’s real money to me!
So what can you do? The best way to take worry and emotion out of investing is to find an allocation that matches your risk tolerance and stick with it. As a very simple example, let’s say you have a target allocation of 50% large cap stock, 30% small and mid-cap stock and 20% bonds, and due to stock market performance, it changes to 60% large cap stock, 20% small and mid-cap stock and 20% bonds.
When you sell 10% of your large cap stock and move those funds to small and mid-cap stock, it naturally builds toward a “buy low sell high” strategy. This rebalancing strategy does not mean a portfolio won’t still experience a loss, but it does smooth the ride and remove gut reactions from affecting performance.
For my clients, this reallocation is done automatically when a portfolio gets out of balance. For a do-it-yourself investor, quarterly is an appropriate time to reallocate a portfolio.
The S&P 500 at an all time high? That’s great! Take your gains through rebalancing and keep your portfolio on a long term course.
FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY.
The views expressed here are as of the date of publication and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer (or recommendation) Hayes Wealth Advisors to sell or provide, or a specific invitation for any investor. Information herein may have been obtained from sources believed to be reliable, Hayes Wealth Advisors is unable to warrant its accuracy.
All data, projections and opinions are as of the date of this report and subject to change.
Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.
Hayes Wealth Advisors does not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be suitable for all investors.
Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration.