If you had money invested in the stock market in 2013, you’re most likely pleased with the results. It’s rare that major stock indexes, like the benchmark Standard & Poor’s 500, generate returns in excess of 20 percent in a single year, as they did in 2013. In fact, the S&P 500 reached a new all-time high, which is a major milestone.
Like many investors, you may be asking, can the upward ride that stock investors have enjoyed since 2009 continue? It’s a question that nobody can answer with certainty. We know that over time, stock markets are unpredictable and do move up and down, sometimes in dramatic fashion. As an investor, you always need to be prepared for periodic market swings. Even more important than determining what’s next for financial markets is to understand your own perspective as an investor.
Questions to ask today
Here are some of the key questions you should ask, and issues you should consider, as you think about what to do with your investments in 2014:
1. Now that the stock market has reached a new record, am I happy with how much I have invested in stocks?
During the severe market downturn in 2008, many investors took money out of stocks, and not all of that money came back. Have you been a participant in this market rally to the extent you would like to be? Whether the answer is yes or no, you may want to meet with a financial advisor to talk about the steps you can take to make investment decisions based on your financial goals and risk tolerance.
2. Should I consider selling my stock positions given the market’s recent strong run?
This question is related to “timing” the market. Trying to choose the right time to buy or sell can be difficult, even for professionals who invest for a living. That said, because stocks have been performing well, you might want to consider rebalancing your investment portfolio as the recent surge could have increased the stock weighting of your overall portfolio. Stocks can be part of almost any asset allocation model, but how much and what type to own varies for everyone. The decision to make changes to your portfolio should be centered on your own needs, goals and risk tolerance. Think about your long-term goals and what you hope to accomplish before making any significant changes.
3. Couldn’t a major economic or world event cause a big decline in the stock market?
This is always a concern for investors. Nobody can predict when the next market downturn will occur. By the same token, few predicted that the stock market would soar in 2013. Surprises can happen in either direction. This is why you need to maintain a well-diversified portfolio designed to help you achieve your long-term goals. Although diversification doesn’t guarantee a gain or prevent a loss, it can help to mitigate the effects of volatility on a portfolio. Markets will move up and down over time, and on occasion, significant events may cause more dramatic shifts in stock prices. A long-term plan is important to help you achieve your ultimate goals.
4. How do I know what’s the right move to make with my equity portfolio now?
There is no single right answer for every investor. You need to assess your personal circumstances – most notably the amount of time you have to keep your money invested before reaching specific goals and the degree of market fluctuation you can live with in your portfolio. Making your decision based on what works for you in the long-term will make it easier to weather short-term concerns. It may be beneficial for you to consult with an investment professional to help you reach your financial goals.
Brandon Miller, CFP and Joanne Jordan, CFP are financial consultants at Jordan Miller & Associates, A Private Wealth Advisory Practice of Ameriprise Financial Inc. in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.
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