Objective information about financial planning, investments, and retirement plans

Stock Market Highs and Your Retirement


Today both the S&P 500 Index and the Dow Jones Industrial Average hit all-time highs. This comes less than a month after a 610 point drop in the Dow in the wake of the Brexit, the vote taken in U.K. where they decided to leave the European Union.

Difference Between Stocks and Bonds

Over the past 15 + years we’ve seen two market peaks followed by pronounced market drops.  The S&P 500 peaked at 1,527 on May 24, 2000 and then dropped 49% until it bottomed out at 777 on October 9, 2002.  The Dot Com Bubble and the tragedy of September 11 all contributed.

The S&P 500 rose to a high of 1,565 on October 9, 2007 only to fall 57% to a low of 677 on March 9, 2009 in the wake of the Financial Crisis. Since then the market has rallied with the S&P closing at a record 2,152 today. As someone saving for retirement what should you do at this point?

Review and rebalance 

During the last market decline there were many stories about how our 401(k) accounts had become “201(k)s.” The PBS Frontline special The Retirement Gamble put much of the blame on Wall Street and they are right to an extent, especially as it pertains to the overall market drop.

However, some of the folks who experienced losses well in excess of the market averages were victims of their own over allocation to stocks. This might have been their own doing or the result of poor financial advice.

This is the time to review your portfolio allocation and rebalance if needed.  For example your plan might call for a 60% allocation to stocks but with the gains that stocks have experienced you might now be at 70% or more.  This is great as long as the market continues to rise, but you at increased risk should the market head down.  It may be time to consider paring equities back and to implement a strategy for doing this.

Financial Planning is vital

If you don’t have a financial plan in place, or if the last one you’ve done is old and outdated, this is a great time to have one done. Do it yourself if you’re comfortable or hire a fee-only financial advisor to help you.

If you have a financial plan this is a great time to review it and see where you are relative to your goals.  Has the market rally accelerated the amount you’ve accumulated for retirement relative to where you had thought you’d be at this point? If so this is a good time to revisit your asset allocation and perhaps reduce your overall risk.

Learn from the past 

It is said that fear and greed are the two main drivers of the stock market. Some of the experts on shows like CNBC seem to feel that the market still has a ways to run and might even be undervalued. Maybe they’re right. However don’t get carried away and let greed guide your decisions.

Manage your portfolio with an eye towards downside risk. This doesn’t mean the markets won’t keep going up or that you should sell everything and go to cash. What it does mean is that you need to use your good common sense and keep your portfolio allocated in a fashion that is consistent with your retirement goals, your time horizon and your risk tolerance.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner . Please check out our Resources page for links to some additional tools and services that might be beneficial to you. 

Photo credit:  Phillip Taylor PT

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  1. This is great advice. Rebalancing and assessing where you’re at every once and awhile is a really good idea. I’m a bit worried that we may see a “market correction” soon, but I’m in no spot to predict when that may happen. I will just continue to invest and stick to my long-term plan.

    • Roger Wohlner says:

      Thanks for your comment Jake. Rebalancing is about risk control in my opinion and while its tempting to let things run when the markets are on a tear history has a nasty habit of repeating itself.

  2. As an investor, as soon as you find yourself wondering what to do based on the current market conditions, you know you’ve made some serious mistakes. Investing isn’t about reacting to the latest news or the current market level. As you say, it’s about having a well-thought out plan and executing it consistently. If you’ve done that, there is never any confusion.

  3. I have always been strong on stocks and have never felt comfortable in bonds. I am OK with CDs and money market funds. My portfolio is 65 in stocks and 35 in fixed stuff. As I am 62, I am being told to reduce my stock holdings. Does this really make sense when fixed income returns are so lousy? What are appropriate rules of thumbs as far as percentages? I know 100-age (62)=38% in stocks, but is this really a good rule of thumb?
    Anyway great post Roger; really appreciate your insight!

    • Roger Wohlner says:

      Steven its hard to say what is right for you or anyone else in this type of forum. My biggest concern is that investors don’t take the attitude “… it’s different this time..” because it never is. A financial plan with an asset allocation that includes a level of risk that appropriate for your situation is a great start. Going too heavy (what ever too heavy is for you) exposes you to more downside risk than perhaps is right for you at your age. Rebalancing and asset allocation are about risk control first. I do agree that bonds carry risk and at the very least investors should consider lower durations.

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