FAQ: Now that the market is at all-time highs, how should I change my investments strategy?

Answer: This is an excellent question that we get from our members whenever the market makes new highs (which has been often, lately).

The answer is that a new high should have little relevance on your asset allocation. The economy is supposed to grow, businesses are supposed to work to become more efficient, and thus, the stock market is supposed to make new highs over time. In 1924, people were concerned when the Dow crossed over 100, in 1982, they were concerned when it crossed over 1,000, in 2011 they were concerned when it broke 10,000, and in 2016 when it broke 20,000. As I write this, the Dow Jones Industrial Average sits just shy of 29,000. Over that time, the growth has been compelling.

This is not to say that the market has not experienced financial challenges and lost decades along the way. We’ve had depressions, recessions, financial crisis, bursting bubbles, wars, and terror attacks. All of these periods are scary and can lead to dramatic declines. However, the one thing they all have in common is they were temporary. In time, the market recovered to make fresh highs, often leading to period of decades of fresh highs.

A better question may be related to market valuation. Are the investments I have in the market today (even at fresh highs), valued at or below historically average valuations? In today’s environment, the answer is yes. During periods right before major financial collapses such as the late 1920’s or the late 1990’s, valuations had no correlation with reality. A correction was inevitable, if not long overdue when it came.

Focus on an allocation based on your age and risk tolerance and ignore the rollercoaster ride the market will surely offer. Come retirement, you will be much more comfortable with this long-term approach.