Dear Trust Officer: The S&P 500 stock index has reached new highs. Should I consider selling now?
— Prosperous but worried
DEAR PROSPEROUS BUT WORRIED:
Passing a stock index milestone is not a signal to buy or sell. However, it does focus attention on the market, and it may cause some investors to evaluate their portfolio. There can be a strong temptation to “take some money off the table.”
How close are you to retirement? How much risk are you willing to assume? Those answers are better clues to making an investment decision that allows you to sleep well at night.
This could be a time for portfolio rebalancing, if you haven’t made this assessment recently. If your asset allocation target were 60% stocks, 40% bonds, you may find that the stock portion has now grown to 70%. That means your portfolio is now riskier than it used to be. If that makes you uncomfortable, you need to sell some stocks and invest in bonds, to keep your allocation steady.
On the other hand, bonds have risks of their own, as interest rates could rise in the coming years, to return to more historically normal levels. That would push down the value of previously issued bonds. What’s more, if you share in the optimism about the economy, this might not be the right time to reduce your exposure to growth. After all, the payroll and employment numbers are very good; the Fed is holding interest rates steady; and a recession does not appear imminent.
If you might benefit from a second opinion on your investment strategies or the composition of your portfolio, we would be pleased to meet with you to discuss your situation. Investment management throughout market cycles is a core element of our daily business. We will be pleased to share our expertise with you.
Do you have a question concerning investment planning? Send your inquiry to Tasha Bucher at firstname.lastname@example.org.