Should I Be Afraid of All Time High’s?

This week I have received a number of questions regarding the stock market hitting new all-time highs. It is very natural to wonder if we have peaked and headed for a downturn. Whether you should be concerned about the stock market all-time highs depends on your individual financial situation, investment goals, and risk tolerance. Here are some factors to consider:

1. **Long-Term Perspective**: Historically, the stock market has trended upwards over the long term despite periodic fluctuations and all-time highs. If you're investing for the long term, all-time highs may not be a cause for concern.

2. **Short-Term Perspective**: Stock market corrections are not uncommon after new all-time highs. Depending on your circumstances and short-term needs from the portfolio, this is a great time to revisit your strategy and ensure you are prepared to ride out volatility for the next year or so.

3. **Intentional Investing**: Tailoring your investments to meet the needs of a particular financial goal, such as cash flow generation, inflation protection or leaving a legacy, allows for a longer term perspective. If your stock portfolio’s investment time horizon is over 10 years, what happens over the next year becomes much less worrisome.

4. **Economic and Market Fundamentals**: Assess the underlying economic and market fundamentals. Are corporate earnings strong? Is there robust economic growth? Is the whole market rising or just a select few stocks? Positive fundamentals can support continued market growth.

5. **The Federal Reserve**: The Fed's actions and policies can have significant impacts on stock prices and market dynamics. When the Fed lowers interest rates, borrowing becomes cheaper, which can stimulate spending and investment, potentially boosting corporate profits and stock prices.

6. **Risk Tolerance**: Evaluate your own risk tolerance and investment horizon. If all-time highs make you uncomfortable and cause anxiety, it might be a sign that your portfolio is not aligned with your risk tolerance or your personal goals. Implementing sell discipline is a great way to limit your risk exposure.

7. **Market Timing**: Trying to time the market by avoiding investing at all-time highs can be challenging and often counterproductive, especially for long term investors. Too many investors have missed out on significant gains by trying to time the market or letting fear drive their decisions.

8. **Regular Review and Rebalancing**: All-time market highs are a great time to take profits and rebalance your portfolio. Depending on your needs and preferences, selling stocks at their best prices allows you to reward your previous patience and lock in long term gains.

Ultimately, while all-time highs in the stock market may be concerning to some investors, they are a natural part of market cycles. It's essential to have a well-thought-out investment strategy and to stay disciplined in your approach, regardless of short-term market fluctuations. If you're unsure about how to navigate these market highs or have concerns about your investments, consider scheduling an appointment to review your portfolio and develop personalized advice based on your individual circumstances.

At Sevey Wealth, we have a plan for all-time highs… Do you?