The stock market is at an all-time high.
Which is great, right? Your 401(k) has never been higher, and you’ve never been richer!
But wait. “What goes up must come down,” right? If the market is soaring now, is a dip—or a crash—just ahead?
It’s a dilemma: Should we be content or concerned? Should we sit tight or “sell high”?
Here’s a three-step process to help you decide what to do in a bull market.
1. Adjust your market expectations. Most of my new clients swear on a stack of brokerage statements, “I’m not going to try to time the market…”
The next words out of their mouths? Something like, “But…this new president…” or “The market sure is high…” or “We’re coming out of this pandemic…” or “Bitcoin is taking over….” or “Taxes are going up…”
“It isn’t smart to try to time the market,” they seem to be saying, “but can we give it a try?”
Answer: No. If market history has shown us anything, it is the wisdom of Yogi Berra when he said, “It’s tough to make predictions, especially about the future.”
Here are two things history has clearly shown us about markets:
The long-term tends to be lovely. I was born in the late fifties. If my parents had taken just $100 and put it in the S&P 500 stock index, it would be worth over $40,000 today. That’s almost enough for a down payment on a Tesla. That’s over 10% per year! What’s not to love, right?
The short-term tends to be dicey. But if I had put $100 in the market in 2000, eight years later it would have been worth…less than $100. If I had waited until 2007 to put in my $100, six years later I would have…less than $100.
Even though the market tends, over time, to go up, it does not go up steadily and predictably.
2. Adjust your portfolio plan. In the Information Age, news about markets and world events comes at us faster than we can process. If we get swept up in this moment-by-moment flow of information, we will leave no room for wisdom. And wisdom is what we desperately need in such fast-paced, noisy times.
Wisdom and experience teach us that good markets and bad markets can each last longer than anyone expects. The solution isn’t secret knowledge about what the markets will do tomorrow or next week. It’s understanding your current situation and your long-term goals. That’s the essence of a sound financial life plan.
Too many people say they want a wise portfolio plan, when they really want a fortune-teller. Such people do not exist…but there is no shortage of financial charlatans who claim they have those abilities.
The best way to way to manage the uncertainties of the markets is to align your portfolio plan with your financial life plan.
3. Enjoy your life. If your investment portfolio has any other ultimate purpose than to make your life better, you’ve got work to do.
It is my belief that a numerical goal (“I want $1 million in my 401(k)”) is not sufficient. Neither is a rate of return (“I want at least 7%”) or a competitive goal (“I just want to beat the market!”). Those won’t satisfy.
Better to ask yourself questions like: What do I want my life to look like? Do I want to be financially independent? How can I use my portfolio to generate sufficient income (when I stop working) for me to live my desired lifestyle?
A great step in getting to such a place of true financial freedom is to read my newest e-book. It’s titled “How to Put Money Worries in Your Rear View Mirror.” It’s for anyone who feels lost when it comes to finances (which, let’s be honest, is some people all the time, and all people some of the time). This e-book/roadmap is free to anyone who emails me at email@example.com.
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