Is it time to sell off your stocks?
The stock market is high, so should I sell?
This is a reasonable question, and one we field every day. The Standard & Poor’s 500 index has grown almost 200% percent since hitting bottom in early 2009, and people want to know if it’s time to be a bull or a bear?
But while the question may be simple and straightforward, the answer is more complex. Simply put, it depends on you!
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. As a CERTIFIED FINANCIAL PLANNER™, I can educate you in modern portfolio theory, which is designed to minimize risk while maximizing returns.
There are many questions to answer.
- How do we divide your portfolio between equities and fixed income (that is, stocks and bond)?
- How much of your portfolio should be domestic, and how much should be foreign? (If much of your portfolio is invested overseas, then the S&P 500 might not mirror your position at all.)
- What’s your timeframe? Will you need the money in 10 years, when your kids go to college, in 30 years, when you retire, or in the next few months for a more immediate need?
- Have your goals changed since the last time we looked at your portfolio? If so, this might indeed be a good time to do some rebalancing.
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, or 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 look over your portfolio with you lately, please get in touch.
Justin A. Goodbread, CFP®
