Yesterday the Dow Jones Industrial Average closed at 14,253.77, an all-time record high. By one measure we've now gotten past the financial crisis as the prior high was reached pre-crisis in 2007. The S&P 500 is also near record territory.
The Dow is a pretty narrowly focused index of 30 stocks of very large companies. While this index is influential and widely followed it is not really a good indicator of much of anything. Perhaps a better index to look at is the S&P 500. This index hit bottom during the financial crisis on March 9, 2009 closing at 677. Yesterday it closed at 1,540, still a bit shy of the 2007 all-time high of 1,565.
This means the index level is up 127 percent above the March 2009 low. Looking at this another way, an investment of $10,000 in the Vanguard 500 Index Fund made on February 28, 2009 would have been worth $22,360 exactly four years later.
So what should you be doing now? The experts being interviewed on CNBC are all over the board. Some say wait for a pullback to commit new money, others say this is just the beginning and the market has a lot of room to run higher. I just heard Jim Cramer say, "[W]e are slaying the bear market” and also use the phrase “end of bear market thesis” on the program.
I would defer to the advice of a real expert, Diahann Lassuss a New Jersey and Florida-based fee-only financial planner. She posted this on Twitter today: “Looks like a good time to review your investment allocation. :)”
"When it feels better."
This advice is both simple and powerful. Individual investors are known as notoriously poor market timers. I'll never forget a conversation with an investor near the depths of the market in the wake of the 2000-2002 drop following both the end of the dotcom bubble and after the 9/11 tragedy. I asked this investor when he might look to get back into the market. His answer was "When it feels better."” At current levels I'll bet that a lot of investors “feel better” about the markets than they did in March of 2009. This is reflected by the recent increase in inflows into equity mutual funds.
Focus on the basics.
I tend to share Diahann's view of things and I'm focusing on my client's investment allocations in relation to their financial plans and their risk tolerance. In addition, I'm also focusing on the duration of their fixed-income holdings. Duration is a measurement of the sensitivity of a bond fund to a change in interest rates. If your bond fund has duration of 5 years, all else being equal, you could expect a drop of 5 percent in the value of the underlying holdings in the fund should interest rates increase by 1 percent. This is an indicator, not a perfect gauge. You can find your bond fund's duration at Morningstar.com (click the portfolio tab) among other places.
All of this hype is great for the brokerage firms and the media. To you, the individual investor it should be pretty meaningless.
Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations, and endowments. Roger is active on both Twitter (@rwohlner) and LinkedIn. Check out Roger's popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments, and retirement plans.