Retirees may want to re-balance their portfolio, as tough as it may be during periods of
Friday, March 9, 2018, marked the ninth birthday of our current bull market, which began at market close back in 2008 when the most devastating bear market since the Great Depression came to a close. A decade ago, stocks had bottomed out as the Dow Jones Industrial closed at 6,547 and the S&P 500 had dwindled to 677. Assuming this bull keeps running in 2018, it has the chance to surpass the longest ever bull market in modern financial history, which ran from October 11, 1990, through March 24, 2000. The current bull market would tie the record-holder on August 21, 2018. Market veterans know, however, that it isn’t always a safe measure to assume anything.
A bull market is defined as a financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded such as bonds, currencies and commodities. In contrast, a bear market happens when stocks decline at least 20 percent from their peaks. A “correction” is when stocks fall 10 percent. Bull markets are characterized by optimism, investor confidence and expectations that strong results should continue. It is difficult to predict consistently when the trends in the market might change.1
The current bull market – the second longest since World War II – looked like a certainty to reach a decade little more than a month ago, as jubilation rippled through the economy on the heels of President Trump’s corporate tax cuts and a ramped up economy that propelled the markets upward. Investors seemed fat and happy.
However, we were again reminded in early February 2018 that all that glitters isn’t necessarily gold, and that markets do eventually succumb to some degree of downward gravitational pull every so often, as the Dow set a different kind of record, plunging 1,175 points – the worst single-day dive in history. This was in large part due to skepticism about inflation and worries about President Trump flexing his international trade muscles and creating a trade war overseas in Asia, Europe and beyond. Wall Street again stabilized in weeks following, and is now back in positive territory for the year.
At this moment in time, President Trump has said North American trade comrades Mexico and Canada have been named as exempt from the aforementioned tariffs that spooked Wall Street, and there remains optimism that other trade allies will be granted exemptions as well. After all, international trade wars typically don’t benefit anyone.
Rebalancing Your Portfolio in the Midst of a Bull Market
For investors who fret that this bull will soon run into a fence that it can’t break through, an adequate countermeasure may be setting an appointment with your trusted financial services professional to run through portfolio rebalancing scenarios, taking a careful look at your allocation and risk tolerances. If investors don’t rebalance, they need to, at the very least, double-check with their financial brain trust to ensure a drawdown won’t disrupt their retirement plans in a catastrophic manner. If you’ve shifted your allocations into riskier territory, chances are that you’ll never notice it until it’s too late and you’ve lost money in a market downturn. Investors can choose to rebalance or revisit according to the calendar, doing so once per quarter, or by setting thresholds to alert them to do so once their allocation drifts more than, say 5, 10 or 15 percent in either direction from their preferred target.