- By Kerry Hannon
It’s been a pretty gleeful gallop for U.S. stock market investors lately. That’s why I’ve been asking my girlfriends in their 50s and 60s whether the wow Dow had led them to buy more stocks and mutual funds or if it was making them uneasy.
Somewhat surprisingly, most of them weren’t the least bit worried about a market tumble.
I knew that I wasn’t nervous either. That’s because I rarely buy individual stocks — "diversify through mutual funds" is my motto — and routinely rebalance my portfolio to ensure its mix of stocks and bonds matches my intention.
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But I wasn’t sure my friends had the same sensible mojo.
Joining in the Market Mania
It’s tempting to buy stocks these days, since no one wants to miss out on a bull market. “I find it fascinating that new money is flowing into the market now, instead of in 2009 when stocks were on sale,” says Eileen O’Connor, a wealth manager at McLean Asset Management Corp. in McLean, Va., referring to the market bottom.
Gregory A. Bitz, president of the Metropolitan Financial Group in Chevy Chase, Md., echoes O’Connor. He has noticed small investors going a little bit bonkers lately.
“In the last couple of weeks, I have had more delusional emails from clients about the stock market than I have had for years,” Bitz says. “They’re caught in the bubble of ‘I’m making money and it feels so good I need more.’”
Time to Reassess Your Investments
A bit of advice from Bitz: Put the brakes on.
“Think back to how bad you felt four years ago, when you lost half your money in the market,” he says.
Bitz believes that now is the perfect time to reassess your risk tolerance and perhaps shift some of your portfolio out of stocks and into less volatile investments, like bonds or total stock market index funds, mutual funds that track the total returns of the entire U.S. market.
I agree with him.
How My Friends Are Investing Now
So what are my female friends up to with their investments?
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Some have bought shares of companies they’ve been eyeing because they think they're undervalued. They believe these stocks will be winners over time and are willing to take the risk that the market will stay relatively robust, since corporate earnings and dividends are rising, the housing market has steadied and the unemployment rate is slowly falling.
That’s a solid investment strategy in any market, I say.
Others told me the market’s rise gave them the impetus they needed to up their investment in stocks. One said she just bought shares in a company whose stock was beginning to tick up. “I think this one has legs,” she said.
Frankly, hearing that worried me a little. Some pros say that when normally cautious investors buy stocks because the market is frothy, it can be a sign that the ride is almost over.
One pal took the opposite course, selling two tech stocks that had been dogs for some time, but had finally produced gains. She happily paid taxes on her profits and plans to use the money to finally put in the kitchen counters she has long wanted.
A cautious 57-year-old friend has rebalanced her portfolio, shifting her new 401(k) contributions into bonds. This way, her retirement account will again be 65 percent in stocks and 35 percent in bonds. That’s the breakdown she and her adviser felt suited her age and her moderately aggressive risk tolerance.
“It scares me to have too much riding on the stock market,” she told me.
Not only do I applaud her move, I’m pleased to say that our gender is generally good about rebalancing.
“Women are better long-term investors than men,” O’Connor says. “So they are likely better positioned to systematically rebalance regularly and let their goals drive their allocation, not market events.”
Optimistic About Stocks
So what should investors be doing now that the market has hit heady highs?
Overall, I agree with Chris Farrell, who recently wrote on Next Avenue that he believes the economic fundamentals suggest that stocks still have a long way to go. And I second his view that market volatility won’t disappear, so you should “embrace diversification, dollar-cost averaging and a balanced portfolio.”
4 Recommendations From Money Advisers
That brings me to the advice I heard this week in interviews with money pros. Their four recommendations:
1. Keep cool and review your investments. Discipline is critical in an up market, says Roger Wohlner, a fee-only financial planner with Asset Strategy Consultants in Arlington Heights, Ill.
“Invariably, many investors feel overly confident that their investments will continue to rise,” he says. As a result, Wohlner notes, they let the stock portion of their portfolio get overweighted, which makes their savings vulnerable when the market turns south.
Given the market’s run-up, it’s a good time to look over your portfolio, including your 401(k) account, to ensure that your stock and bond allocations aren’t out of whack.
“Generally if a client’s allocation varies by more than 5 percent above or below the target we set, we consider rebalancing,” Wohlner says.
(MORE: And Now a Cheery View of Women and Retirement)
2. Secure profits prudently. Take the rebalancing process a step further and use the market rally as a reason to weed out some of your stocks.
You might sell ones that haven’t performed well, have climbed only slightly or no longer suit your investment tastes, as I wrote in this Next Avenue post on investing with your conscience.
3. Diversify your holdings. Since U.S. stocks have been on a tear, “we’re encouraging people to look more internationally,” says Christine Fahlund, a senior financial planner at T. Rowe Price in Baltimore.
If your retirement account’s domestic stock funds have soared in value recently, it could be an opportune time to start putting money into an international fund or a global stock fund with U.S. and foreign holdings, she advises.
You might also consider making some new retirement plan contributions into an alternative investment, like a real estate investment trust or a mutual fund that buys them.
4. Donate some stocks or stock funds to charity. Stocks that have soared in value are especially appropriate, Fahlund says. That’s because you won’t owe capital gains when you give them to a charity.
Just be sure to vet any charity before you make such a gift to help ensure the money will be put to good use.
I offered some tips on how to do so in my blog post, “How More Women Can Become Philanthropists.” Ken Stern, author of With Charity for All, also has some smart suggestions in his Next Avenue article, “A Charity Expert’s Advice on Giving Wisely.”
If happier stock market days are here to stay for a while, I can’t think of a better way to share the spoils.