The Dow Set a Record – What do you do Now?

On March 7th the Dow rocketed past its previous all time high of 14,165 to end at 14,254 and set a new high point for the index.  The S&P 500 has also climbed and sits just 1% below its all time high.  U.S. markets have risen 13.7% in the past year and are up 47.5% in the past three years.  It took almost five and a half years, but the market has finally recovered from the depths of the financial crisis and has reached new heights.

This all happened despite the much discussed sequester coming to pass at the beginning of March.  The deadline to avoid the ballyhooed $85 billion in spending cuts came and went with a collective shrug from the markets.  Time will tell whether the cuts will have a significant impact on economic growth, but the markets digested the potential for a lack of a deal and moved on.

With the market surging to new heights what is an investor to do?  If the markets have risen this much should you jump in to ride the wave, or should you be selling since the market has reached a new peak?  The answer lies in your target asset allocation.  Based on the goals of your investment portfolio and your ability and willingness to take risk, the target asset allocation is the breakdown between growth and capital preservation oriented investments designed to help keep you on as smooth a path as possible on the way to your goal.

The targets of these investments should dictate what your next move is.  Given the surge in stock prices, especially over the past year, it is likely that your stocks have moved past their targets.  If this is the case it makes sense to sell a portion of your stock holdings and move them back to their target allocations.  Letting your target asset allocation guide you helps take the emotion out of the decision and better positions you and your portfolio for future success.

Index Performance                                    Feb.       YTD     Trl 1 yr.

US Stock (Russell 3000)                                 1.33%     6.89%    13.65%
Foreign Stock (FTSE AW ex US)                  -1.09%     2.95%     7.28%
Total US Bond Mkt. (BarCap Aggregate)      0.50%   -0.20%     3.12%
Short US Gov. Bonds (BarCap Gov 1-5 Yr)   0.23%     0.11%      1.01%    
Municipal Bonds (BarCap 1-10yr Muni)       0.35%     0.58%     2.96%       
Cash (ML 3Month T-Bill)                              0.00%     0.00%     0.11%

There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Wealth Management, LLC. This information was gathered from reliable sources, but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated. Source: FMG Suite, LLC.
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