This cartoon makes me want to scream out that thoughtful, disciplined investors should never feel like losers. Yes, it can be frustrating when the S&P 500 hits record highs for 12 consecutive months (surpassing the previous record of 11 months) and when the gains seem to come without risk – this is the first year in a dozen years there have been no movements of +/- 2% days.1 However market highs give us a unique, and limited, opportunity to truly optimize our portfolios.
1. Just because the market is high doesn’t mean it will soon fall. In other words, there’s no assurance that this bull market will end anytime soon. Prudent investors may grow even more frustrated, but that’s no reason to abandon thoughtful strategy.
2. Examine, or re-examine, your goals. Market highs afford investors great opportunities to revisit their risk/return profile and to adjust accordingly. I’m not referring to market timing but instead to clinically review the expected return of your portfolio and consider whether you still require as high a return. Have circumstances changed? Can you tolerate a lower risk/lower return portfolio and still accomplish your financial goals? A good example is a university client of ours that, because their endowment has grown considerably in recent years, is systematically reducing their annual spending rate. It’s a unique opportunity to lower their spending, from 5% to 4% over time, while satisfying their budget and stewardship duties.
3. Stick with a thoughtful rebalancing strategy. Watching new market highs can seduce investors to stay with or even load-up on the winners and underweight target allocations in those investments that haven’t fared as well. Remember that balanced portfolios are built to perform across a variety of market conditions. Just because we haven’t seen volatility and downturns of late, certainly doesn’t mean we won’t. Disciplined portfolio rebalancing strategies, like our Portfolio Engineer™, help investors seal out the noise and maintain a thoughtful approach.
So while prudent investors might feel some frustration, they never should feel like losers. As always please feel free to contact me or any of the professionals at DiMeo Schneider & Associates, L.L.C. for assistance.
