Most people are bullish about the stock market right now. Some would argue that means it’s actually a good time to pull back on equities rather than get even more bullish.
It’s hard not to notice how well the stock market has been performing — some have argued that 2017 was a record year for the markets, while others who’ve been around longer say that it’s the strongest performance since the dot-com boom.
So does this strong performance mean you should take a more aggressive stance in your invetsments?
Bullishness Should Depend on Your Goals
The answer depends on your investment time horizon and goals as much as on broader economic phenomena. The further you are from your intended date of retirement, the more room you have to take on additional stock market risk.
Conversely, the closer you are to your date of retirement, the less it behooves you to take on more risk. Ditto for anything approaching the date of your child(ren) beginning college or any other life event that might call for dipping into savings.
If you have more than a decade of investment time ahead of you, you might choose to allocate more money into stocks and embrace more market risk — as long as you don’t do it indefinitely.
You could make it an interim play that would enable you to reap more gains while the market trend appears to still be going up. Then you could always sell at a profit and move the proceeds back into safer investments like fixed income.
On the other hand, if you believe the market is near its zenith, then taking on additional stock market risk would not be prudent. You could either stay where you are or dial back your exposure to stocks.
You also don’t have to take an all-or-nothing approach to this; after all, if you sell everything and move it all into fixed income at the same time, you’ll have to pay a lot of capital gains taxes.
Instead, try moving gradually — the same way that professionals recommend for people who are within a decade of retirement. Incrementally move from stock to fixed income: A common approach calls for moving 10% of the balance of the portfolio each year.
Whatever you choose to do, remember that the creators of this blog do not qualify as licensed financial professionals — so seek out advice from a professional if you want a more expert opinion.
Readers, what are your investment goals for this year?