It’s always important to evaluate your investment structure, and perhaps more so today, as the U.S. equity markets are now in their seventh year of a bull market cycle. This is not the longest or greatest bull market in history, but it is now the S&P 500’s third longest and fourth strongest bull market since 1929. It’s also well beyond the averages. This means it might be a good time to take stock of your stock market exposure and ask yourself three key questions.
This great bull market could maintain momentum, particularly as the world economy is showing signs of growth, and as investors crave returns in excess of bond yields. However, the stock market is inherently cyclical, meaning that a correction will eventually happen. We therefore always encourage investors to consider the following key points, particularly in our current potentially mature market cycle.
Can I Cover My Income Needs?
If you have or project income needs from your investment assets over the next 5-7 year time horizon, it’s important to make sure you have adequate income and security. SageVest Wealth Management recommends structuring your portfolio to ensure that your investment income plus cash, bonds, and CDs provide ample liquidity to ‘ride out’ a market correction. This allows you to avoid selling stocks and locking in losses in a down market.
Can My Stomach Handle the Risk?
Another important factor to avoid selling and locking in losses is to consider your risk appetite. If you’ve been invested for eight or more years, ask yourself how you felt and how you reacted during the last market downturn. Were you able to stomach volatility and avoid selling? Next, ask yourself if anything is different today that might change your reaction, such as being retired or being closer to retirement. If you’re not sure you can maintain your stock market convictions, it might be wise to reduce equities to an amount that offers psychological comfort and long-term growth potential.
Will I Have Enough To Buy On Dips?
A key element to long-term investment success is buying in down market cycles; hence the saying “sell high and buy low”. As such, it’s important to evaluate your future buying potential, both in terms of your available cash and your ability to withstand more risk. Annual savings provide the ability to buy on dips. If your savings are meaningful, they might suffice. If not, ask yourself if your existing investments are structured to satisfy both your personal income needs (discussed above) and your desire to buy stocks at attractive prices. If the answer is no, it might be a good time to consider repositioning.
The above points are not intended to talk you out of investing in stocks. In fact, SageVest Wealth Management firmly believes in maintaining stock investments throughout all market cycles. Stocks have historically outperformed cash, bonds and other asset classes, and are an incredible wealth creator. The important message is to remember that investing in stocks is easy when they are rising, but not as easy when they are falling; and to make sure that you are properly positioned to weather a market correction, while remaining financially happy and healthy.
As always, SageVest cares about your investments and we appreciate how the wealth that they generate supports you, your family, and your life goals. We invite you to contact us to discuss your investments and finances in greater detail.