Financial strategies for times of record highs (column)

As I write this article, U.S. stock markets continue to bounce around near record highs. From early November last year, post-election, stock markets have moved higher in the U.S., partially in anticipation of more pro-economic, growth-oriented policies.

Another important component is that for the two years before the election, U.S. markets were stuck in a trading range that ebbed and flowed just a few percentage points, with a few jarringly-fast corrections mixed in.

Stock markets were in need of a catalyst to break-out either higher or lower and most recently, the events surrounding the election have been a positive market catalyst. While the U.S. political environment is, to be polite, a bit divided, the markets have been much more collaborative in moving higher.

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Recently I’ve read and listened to a number of experts suggest that perhaps the markets have gone higher too fast with anticipation instead of economic reality driving the upward swings. How will we know if this is the case? Wait a year or so and we’ll know for sure if these “Wall Street” weather predictors are correct. If you have a time horizon exceeding a few years, the reality is these day-to-day headliners aren’t all that important.

But there is some virtue in revisiting how our investing strategies might need to adapt to these conditions.

Let’s start with our next generation of leadership: those in their 20s and 30s. This is the time to start to pay down debt like credit card debt or any debt that has a variable rate. As rates move higher over the next few years, these loans will become much more expensive.

It is also the time to start saving for later in life, saving aggressively in terms of exposure to the stock market. Don’t let market movements be too concerning as there are many decades of time ahead to grow these funds.

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Start budgeting, too. It will help with the social pressures often felt to keep up with our friends’ spending.

As we enter our 40s and 50s, it is important to ensure that IRAs, 401ks, etc. are properly diversified. Balances should be growing, and adding another percent or two of your income each year will help boost long-term savings. You really shouldn’t be trading too much in your 401k. I’ve seen far too many emotional trading decisions trigger delayed retirement based on a hunch or hot tip.

Entering into the decade before retirement, and for those who might have procrastinated the years just before retirement, it is time to live like a retiree for a year or two prior to handing in that final retirement paperwork.

If you can live off your anticipated retirement income, great, and if not, perhaps consider working another year or two, adding a part-time job in retirement, or downsizing your lifestyle.

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Review your overall asset allocation in your retirement portfolio. If we do see a major market correction at this phase of your life, you need to ensure your portfolio is allocated properly so a correction doesn’t impede your retirement plans.

The decade before retirement is an optimal time to tune up your retirement planning which includes a comprehensive analysis of all things financial. Yes, investments are the hallmark of this process but a number of other factors come into play, from Social Security, to ensuring you don’t have other hidden liabilities. Got your will in place? If not, go directly to your attorney.

In retirement, your portfolio needs to be adapted to your current and future lifestyle. Depending on your cash flow needs, anticipated longevity, Social Security, pensions, etc. you may have a very long time horizon for allowing your assets to grow.

A few pre-retirement quick thoughts. Don’t be lured into annuity products that are indexed.

Lump sum vs. pension? It depends. Do you want the cash flow now or a larger amount that could fund your future needs and perhaps be passed to the next generation?

Want to engage a financial advisor? Know if they are a fiduciary or not and compare fees by asking. We get written estimates for most repairs, and this is no different. Get it in writing or move on.

What works well is if you can dollar cost average throughout your working career into a retirement plan, being consistent, patient, and resisting the temptation to outsmart the markets.

I do believe that rebalancing periodically is important. If your stock allocation grows, that’s great, but it makes sense to review your allocation to determine if adjustments are needed.

The second aspect is perhaps the harder one. Rebalancing when markets drop can be incredibly effective. Instead of trying to time when markets will move higher, take advantage of when markets are correcting to buy lower.

In both cases, these are adjustments, and not monumental changes driven by emotional investing but rather a disciplined strategy.

Yes, market highs create a unique sense of relief and anxiety and when coupled with often polarizing political news, we might see market volatility increase a bit. But, having a strategy in place should allow investors to sleep well at night.

Ryan Fox, Huston-Fox Financial Advisory partner, in Gettysburg and Hanover, can be reached at 717-398-2040 or Ryan@hustonfox.com.