After an unexpectedly strong and calm 2017, the S&P 500 Index has started off 2018 with six straight days of record highs. It appears that traders have carried their 2017 habits into 2018 and continue to be in a buying mood.
While current stock prices continue to climb there are still pockets of disbelief. One of the most frequent questions we are hearing from our clients right now is, “How long can this last?”
Despite this disbelief there is plenty of pleasure in seeing account values rise as the stock market gets more and more expensive.
After a record-shattering calm and positive stock market in 2017, this is probably as good a time as any to review our stock market owner’s manual:
1. The stock market can go up and down for extended periods of time based simply on greed or fear. There is no limit on illogical thought.
2. As long as there are still a large number of disbelievers we likely have not reached a market top. When most skeptics abandon their disbelief the market runs out of buyers.
3. Trying to time short-term stock market directions based on current valuations, patterns, or trends is futile. The odds of successfully timing two trades (a sell and a buy) are extremely low.
4. Thinking about future risk instead of past returns helps keep you on track. Understanding how much risk you should take going forward to accomplish your personal goals is far more important than looking at returns in the rearview mirror. Focusing on short-term past returns fuels greed and fear which distort the perception of future risk.
5. The stock allocation in your portfolio is a long-term investment. It is easy to say, but we live in a very short-term world. At IAG we generally only trust the stock market with assets our clients do not plan to use for at least eight years. That puts time on our clients’ side.
The likelihood of the S&P 500 Index setting record highs every day this year is extremely low. However, it does not take much to imagine a year where everything goes right (higher corporate profits, infrastructure spending, economic growth). It is also easy to imagine some bumps in the road (mid-term elections, special counsels, bubbles popping).
Through emotional market cycles of greed or fear, our caring financial advisors’ focus is on helping our clients make logical decisions that are in their best interest for their future.
If you know and care about someone that would benefit from such a focus, we would be happy to help them develop a logical financial plan for their future.
Securities offered through LPL Financial. Member FINRA/SIPC. Financial advice offered through Investors Advisory Group, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
The S&P 500 is an unmanaged index of 500 U.S. large cap stocks. One cannot invest directly in an index.
Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.