The media is excited to say that the stock market is at an all-time high. This news has people emailing and calling us daily asking… “should I sell my stocks?” This is a reasonable question. The Standard & Poor’s 500 index has grown almost 300% percent since hitting bottom in early 2009, and people want to know if it’s time to be a bull or a bear.
While the question may be simple and straightforward, the answer is more complex. Simply put, selling your stock depends on your situation!
The wisdom of experience tells us that 91.5% of the difference between one portfolio’s performance and another’s are explained by asset allocation. (stated by the CFA Institute) In other words, it’s not timing the market; it’s time in the market. If you’ve invested with the help of a CERTIFIED FINANCIAL PLANNER™, your portfolio should already reflect this philosophy.
Even so, if you’re looking to actively buy low and sell high, there are trading methods we can follow (stop loss and trailing stop loss, for example) may help minimize your risk in specific stocks. If you’re invested in mutual funds, the fund managers may already be following this course of action.
If you have been investing without professional help, it may be time to come in for a visit with a CERTIFIED FINANCIAL PLANNER™. CPF’s® like myself can educate you in modern portfolio theory, which is designed to minimize risk while maximizing returns.
But the most important question may be strictly emotional: What’s your risk tolerance? How would you react to a falling market like we had in 2008? If you have nerves of steel, we might go in one direction; if you envision yourself lying awake at night while your stomach does flip-flops, we might choose a very different course.
Warren Buffet said, “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful.”
But of course, the rest of us are not Warren Buffet. There are, indeed, indications that consumer confidence in the market was falling in early 2014 and the bears were gaining prominence. That tells me, as a planner, that it’s time to sit down with my clients and ask them how they’re feeling.
If you’re worried, or if you haven’t had a professional reassess your portfolio with you lately, get in touch with your CFP® today. If you don’t have a CFP® read this post I have written for you learn how to pick one.