So should you sell when the market makes a new top? Probably not, since we have likely already done so as part of our process. The main caveat is unless your situation has changed dramatically, for example if you can’t work anymore and you have had to retire unexpectedly.
I hear this a lot, and usually chalk it up to a lack of clarity around our investment management process.
If you see trade confirmations come in periodically from your investment accounts, it’s probably from a rebalance. This is where we regularly adjust what percentages you hold of risky vs. safer assets based on market movement, and changes in our outlook.
It’s part of our process to make ongoing adjustments for you, so your level of risk doesn’t get out of balance. We try to buy low, and sell high just like the saying goes. If this isn’t done, portfolios can drift way out risk levels and be more likely to have large drops. Conversely, when the stocks drop a lot your portfolio can become overweight with safer assets, so it makes sense to pick up some upside opportunity when it’s on sale.
As we have said in the past, this recent period of strong growth and low volatility can breed overconfidence and complacency. So it is wise to brace for the inevitable pullback. Since 1980 the stock market averaged an annual intra-year drop of around 14%, and since we haven’t seen one for a while something more dramatic is not only possible but expected.
Along the line of this should you sell question. We can show you some sophisticated risk modeling if you are interested in seeing how your current portfolio would likely weather both good and bad markets.
Please let us know if you would like to get together for an update, and thank you for your continued trust and confidence!
Tom Gartner, MSAPM, CFP®
This article represents opinions of the authors and not those of their firm and are subject to change from time to time, and do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment or legal strategy. The information contained here has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy.