As I write this the Dow Jones Industrial Average and the S&P 500 stand in record territory. In fact yesterday the S&P finished above 1,700 for the first time ever. Bonds on the other hand have started to fizzle with virtually all bond categories suffering a loss during the second quarter.
As an investor what now? Here are a few thoughts:
Tune out the media
If you watch CNBC or similar shows the bulk of the guests are encouraging investors to get into stocks even at these high levels. I’m not saying that new money invested in stocks will turn into losses, but I am saying that record market levels are not a reason to suddenly become euphoric about stocks.
Review your asset allocation
As you review your statements look at your portfolio’s current asset allocation to see if the gains in stocks have gotten you away from your target allocation. Certainly market highs are a good time to look at rebalancing your portfolio.
Additionally this might also be a good time to review your target allocation in the context of your financial planning goals. Have the gains in the stock market put you ahead of schedule in terms of reaching financial goals such as retirement and college funding? Perhaps it’s time to take some risk off of the table and adjust your allocation to stocks a bit lower. In any event this is a great to review your financial plan if you have one or to get one in place if you don’t.
Review your fixed income strategy
Bonds and bond funds have operated in a favorable environment for the past 30 years. This changed in the second quarter, though things have recovered a bit in July. None the less at some point we will see interest rates rise. This is a good time to look at your bond and bond fund holdings with and eye towards perhaps shortening up on duration.
It’s been a few weeks since I’ve given recognition to the many excellent investing articles and blog posts out there so here are a few links to some excellent reading:
Mike Piper offers A Look Inside Vanguard’s International Bond Funds at Oblivious Investor.
Ken Faulkenberry explains the difference between Geometric Average vs. Arithmetic Average For Investment Returns? at AAAMP Blog.
Morningstar’s Christine Benz walks us through A Bucket Portfolio Stress Test.
Market Watch’s Brett Arends comments on The return of ‘Dow 36,000’.
Jon shares Stock Basics: The P/E Ratio at Novel Investor.
Please feel free to contact me at 847-506-9827 for a free 30-minute consultation to discuss your investing and financial planning questions. All services are offered on a fee-only basis, no financial product sales, no commissions.
Please check out our Mutual Fund Investing page for links to additional posts about mutual fund investing.
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