What should I do after the 2019 stock market rally?

Steve Merrell |

Q: I had a really good year in the stock market and my IRA is up a lot. Given the political situation and what is happening with Iran do you think I should take my gains and move to the sidelines?

A: I understand why you might feel nervous. After a good year, it is normal to want to lock in your profits—especially with all the crazy things happening in the world right now. However, if you want to be a successful long-term investor, you need to avoid short-term thinking. There will always be plenty of reasons to worry, but long-term success is more likely to come to those who stay disciplined and stay invested.

Since my first job as a government bond trader in 1986, I have experienced the Black Monday crash in 1987, the Mexican peso crisis in 1994, the Asian crisis in 1997, the Russian crisis in 1998, the dot-com bust in 2000, the 9/11 meltdown in 2001, and the Financial Crisis in 2008. Every time panicky pundits proclaimed the end of the world. Unfortunately, some people believed them and sold their stocks. Every time those who did eventually regretted it.

Although it may be volatile from time-to-time, the U.S. stock market is extremely resilient. For example, the S&P 500 is up over 400 percent, excluding dividends, since the bottom of the 2008 financial crisis. The Dow Jones Industrial Average is up 16.5 times from its low on Black Monday on October 19, 1987. Similar stories can be told about the recovery from other market crises. Just think what you stand to lose if you let short-term worries defeat your investment discipline.

When the pundits lose their cool, try to remember that markets favor the long-term investor. Those who try to sidestep market corrections may avoid some painful downturns, but they almost always miss the market’s upside. While they wait for the optimal re-entry point, the market rallies right past them and they are left on the sidelines wondering how to catch a moving train.

A much better approach is to settle on a long-term strategy and then stick to it. Don’t worry about the market’s ups and downs. A well-diversified portfolio of high-quality investments will be strong enough to withstand market downturns and deliver compelling returns over time.


Q: I have always been a long-term investor, but now I am approaching retirement. Should I switch to a more conservative portfolio?

A: Retirement planning is tricky business. Most people have an innate understanding that shorter time horizons usually call for more conservative investments. But don’t fool yourself. Even though you are close to retirement, you still have a lot of life ahead of you. You need to make sure your investment horizon incorporates accurate assumptions about your longevity.

According to the Social Security Administration, a male age 65 has a 22 percent likelihood of living to be at least 90 years old, while a 65 year-old female has a 34 percent chance of living to age 90. If you are married, there is a 49 percent chance that one of you will live to be 90 years old. Therefore, when it comes to retirement around age 65, you should still plan with at least a 25-year horizon in mind.

At the same time, you must consider some near-term realities. How much income will you need in each of the first five years? That money should be invested in short-term bonds or CDs with maturities roughly matching the periods when you will need the money. As your horizon lengthens, you should add more equities to the portfolio to cover longer-term periods. You can also add a qualified longevity annuity contract to help assure adequate income for the far distant years.

Given the complexity of retirement planning, I highly recommend that you work with a financial planner. A well-designed financial plan will help you better understand your situation and design a portfolio that will allow you to retire with confidence.



Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions that you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to steve@montereypw.com.