Investors here in paradise are familiar with decision time as it pertains to choosing social activities for a summer day. So too are the many retired investors fast becoming familiar with the concept of decision time when to comes to their investments and portfolio management. As the Dow Jones continues its march to the Promised Land, many are beginning to feel pressure with the current elevated levels of the markets.
As we digest the realities of where we are, where we have been and far more importantly, where we may be headed, the concept of decision time could very well be renamed “common sense time”. With the stock market careening into outer space with very little rationale or basis behind the surge, many retired investors are digesting the fact that we may be at a point where decisions must be made as to portfolio allocation and holdings. Even the Wall Street spin machine has begun to take inventory of the current elevated levels.
Recently, a USA Today Money article touched on the concept that investors of all types are starting to realize that now may be decision time to consider options for their investing future. With the Dow crossing the 22,000 mark last week this, both alarming and at the same time exciting, event has triggered cause for concern for many. Of course investor greed and complacency will doom many who simply ignore the reality of the current situation. As we ease through the now 8th year of this Bull Run, recent record levels certainly give cause for concern for many.
The USA Today piece pointed out that many analysts do not consider there to be much more upside going forward, at least in the near term. The basis was that anyone in the market currently should be looking long term, a concept often lost during times such as these with day after day of record highs. One of the technical analysis of the current state of the markets is the “valuation” of stocks. The article points out that “ … the market isn’t cheap anymore...it is overvalued compared to history…and can pose risks.” Now, we shouldn’t need a degree in economics from Harvard to grasp the fact that in light of the time and scope of this market run, certainly that “ … valuations are stretched … ”
Investors should have concern as to where and when this market will reach the top. The concept is simple; the top can signal that a correction is imminent, but more importantly, that there is little upside going forward, especially important for investors considering entering the stock market or those concerned with maintaining their gains.
Doug Ramsey, chief investment officer at The Leuthold Group, state that “ … there are a few signs that a major market top is imminent.” Ramsey points out that “Stocks are likely to be considerably cheaper in 2018, 2019 and 2020.” Now, does this guarantee anything as far as the immediate direction? The answer is no. However, the realities of recent records with the Dow make it impressive only for as long as these levels can be maintained. In other words, perhaps the best way to enjoy what has occurred would be making decisions as to how the portfolio should look going forward.
These decisions are not necessarily difficult as much as the fact that often times for retired investors, the simple act of making decisions can seem intimidating. As decision time looms for many proactive investors, the primary decision should be based on which asset classes can benefit a portfolio during market turbulence and selloff losses. The safety and predictability associated with an insured index strategy allows investors to enjoy the insulation from market losses while maintaining the ability to capture a percentage of market gains.
It is critical here to keep in mind; these alternative asset classes need only comprise a percentage of the overall portfolio. Certainly the potential to have minimal stock market correlation brings Managed Futures into the mix as well. The decision to truly diversify can lead to the life of a SWAN, Sleep Well At Night.
William F. Hague is a managing partner of Hague Wealth Management; 239-389-1999 or WFHague@earthlink.net. The opinions and observations stated above are those of the columnist.