It’s not a coincidence that the market crosses into record territory as your portfolio gains because investors need that; the market must push higher over time in order for people to build portfolios.
The current stock-market run surpassed the record for longest bull market in history and the Standard & Poor’s 500 and Nasdaq composite indexes have created new highs.
It made investors worry, rather than celebrate, and raised the question of whether the market is due for a downturn.
The answer: It is, and it isn’t.
Yes, it has been longer than ever between bear markets and big downturns. By that standard, the market is “due” for some sort of respite or breather that breaks the string.
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No, bull markets don’t die of old age. While you can see potential warning signs that could make for a downturn in the future, you could miss out on months or years of gains waiting for those flashpoints to be triggered.
Generally speaking, market milestones are meaningless.
For example, there is no denying that when the Nasdaq Composite crossed 8,000, it represented the second 1,000-point barrier surpassed this year; the last — and only other time — the index climbed through two landmark numbers in a year, it was 1999, shortly before the internet bubble burst.
There are plenty of examples like that. While milestones are relevant points to traders, they tend to be unimportant to individual investors.
It’s not a coincidence that the market crosses into record territory as your portfolio gains because investors need that; the market must push higher over time in order for people to build portfolios. But for most of an investor’s lifetime, the market is grinding higher and even as it touches record territory, it’s not locking in gains that can make a consumer set for life.
Thus, unless you have reached your goals and can now step back from full-on accumulation mode to a more protective asset-management process, there’s no real reason to change your financial plan now.
There is, however, plenty of reason to double-check your holdings to make sure you are well positioned for the future, including any potential downturn, whether those tough times arrive in the near future or years from now.
Here are the tasks to do now, so that you can be comfortable with how you’re positioned no matter whether the market’s next headlines are good news or bad:
• Check your current asset allocation with an eye toward rebalancing.
The easiest thing to do when you are making money in the market is to let things ride. At some point, however, that ride can get out of control.
If you had a 60 percent stock/40 percent bond mix in 2009, your portfolio could be in the neighborhood of 85 percent stocks today.
You also are nearly a decade older, and might be ready to be more conservative, even as your portfolio has grown more aggressive.
Thus, it may be time to put your portfolio back onto plan, to align it with an updated allocation plan or even — if you are near retirement age — to build up some cash so that you can cover your spending needs without raiding your portfolio in a downturn, a move that will allow you to keep your portfolio focused on the long-term no matter what the market is doing. Many experts suggest retirees keep at least one year’s spending in cash instruments like money-market funds.
• Examine the quality and costs of your investments.
Bull markets hide a lot of investment ills, including mutual funds that lag their peer group or have fallen out of step with the industry trend of lower cost structures.
Don’t confuse positive numbers on your statement for a confirmation that you own superior investments. The rising tide has lifted all boats, even leaky, substandard ones; if you don’t think your investment vessels can weather future storms, fix the problem now.
• See where you stand, relative to your plans.
Potential downturns are always scary, but especially if you don’t have a plan to weather them. Virtually every investor survey shows that working with a financial planner raises confidence and eases stress over regular market movements.
If you have a financial plan, compare where you are to where you planned to be by now; if you’re not using a formal financial plan but are mostly throwing money into the retirement pot hoping it will be enough, then consider Fidelity Investments’ guidelines for savings, built on years of working with savers and guiding them through the process of making their money last a lifetime.
I’m not a big fan of rules of thumb, but Fidelity’s guidelines at least give a reasonable measure of where you stand. According to the Boston-based investment firm, you should aim to save your salary by age 30, three times your salary by age 40, six times by age 50, eight times your salary by 60 and 10 times your salary by 67.
Seeing where you are on that scale will help you decide whether the market has rewarded you, which is much more important than hitting new heights or breaking records for the length of an up market.
• Admit that, as a long-term investor, you have no idea and no control over what the market will do next.
No one saw today’s records coming out of the aftermath of the financial crisis of 2008, and no one who lived through the first few ebullient years of gains expected them to continue this long. Bear markets have not been repealed; they will come back.
If you have made it this far without the foresight to know that this bull run was going to happen, don’t expect your investment vision to improve now. Instead, stick to your plan, rather than trying to change course on the hope that you can guess at what’s next.