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Nothing can stop today’s market until something does


Is this not the most nerve-racking stock market rally you can remember? Despite countless reasons for concern – including political uncertainty at home, geopolitical risks abroad, high valuations and Fed rate hikes to name a few – stocks continue rambling to new highs at a dizzying pace. What’s especially frustrating is that many investors with a strong recollection of the financial crisis that nearly crippled markets 10 years ago have positioned portfolios for a breakdown that has yet to occur.

One might argue that many thoughtful acts by investors have resulted in higher frustration levels. Which of the following are you guilty of?

  • Owning investment-grade bonds
  • Rebalancing winning positions
  • Diversifying into non-traditional asset classes

While perhaps prudent, each of these actions could have cost an investor money in the recent past. Owning conservative or diversified investments didn’t pay off. Neither did thoughtfully trimming winning positions that have soared in value. By the numbers, these sensible acts simply caused some investors to feel like losers (even though their portfolios may be performing quite well this year).

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 percent  days1. However, today’s market highs give us a unique, and limited, opportunity to truly optimize our portfolios. Consider the following:

  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. This does not refer 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? For example a university foundation whose endowment has grown considerably in recent years, is systematically reducing their annual spending rate. It’s a unique opportunity to lower spending, from five to four percent over time, while satisfying 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 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.

1Schwab Market Perspectives, September 29, 2017

Wealth Management Services Disclosure

Information in this document was prepared by DiMeo Schneider & Associates, L.L.C. and although information in this document has been obtained from sources believed to be reliable, RSM US Wealth Management LLC, DiMeo Schneider & Associates, L.L.C. and their respective affiliates do not guarantee its accuracy, completeness or reliability and are not responsible or liable for any direct, indirect or consequential losses from its use. Any such information may be incomplete or condensed and is subject to change without notice. The Frontier EngineerTM is a registered trademark of DiMeo Schneider & Associates, L.L.C.

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