This will be a short post. Dow Jones reached all time highs this week. After it happened early in the week I was ready for a decline but it reached higher highs every day this week. I didn’t do anything to my portfolio and enjoyed nice gains in my index funds that I am invested in. It was also a dividend quarter and reaped $170 worth of dividends. Cash up!
New All Time Highs
This stock market rally isn’t like any other rally that has happened in the past. The world reeks of uncertainty with low oil prices, Brexit, and negative interest rates becoming globally popular. S&P earnings growth have also declined for a fourth straight quarter, yet the US stock market is on fire with no way of knowing what will put the fire out.
I’m more of an average investor in that I look more for the average returns I make over a long-term period and while I am afraid of a correction in the market looming soon with the current valuations in place, I won’t be changing my portfolio because I have no idea when the correction will happen.
You could deem the 1Q 2016 as the correction period, with a ~10% decline in the stock market and that this week acted as a bounce from that correction but it’s too hard to know because it’s a macroeconomic event that is hard to measure all of the specific details involved.
If you are looking for bullish signs, according to Tom Leveroni at Nautilus Research, when US market broke multiyear highs, it was followed by a period of prosperity. The market broke multiyear highs 17 times in the past and in those 17 times, the 1-year return was positive from when the all time highs happened.
What does this mean for you? If you are a long term investor, this means absolutely nothing. It shouldn’t change the behavior that you’ve been doing, such as saving 25-50% of your after-tax income, regularly investing in your 401k, and working hard.
In the bad times, people spend less and demand falters. In the good times, people spend more and demand picks up. Instead of only spending less when you know the economic conditions are bad, why not spend less before you know the economic conditions are bad to prepare?
This is the good times, the money should be flowing in, baby! Instead of looking for the material gratification with the cash, you should invest the extra flow of money for experiential gratification of early retirement. Experience trumps material possession for happiness anytime.
What Will I be Doing?
I, as a rule of thumb, never buy securities on a positive day and instead always look to sell on a positive day if I decide to sell. Therefore, I will be doing absolutely nothing to my portfolio and hoping the bull market will continue to the top! However, I know that’s impossible so the best I can hope for is for a drastic recession to not happen. Losing 30-40% of my net worth is scary to me because I’ve worked hand and foot for my money. Therefore, I will be doing anything I can do over-prepare for the situation.
My target savings rate for the upcoming year will be 40% of after-tax income. I know that it is achievable because I eat at my house every day after coming from work, spend about 25% less on rent than I did when I was in college, and have a higher income.
Disclaimer: I am not an investment advisor, please do your own research and none of what I posted above should be taken as investment advice.
Readers, what will you do with the all time highs? Are you changing your portfolio strategy, spending behaviors, or anything else? Let me know in the comments below!
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