Markets continue to baffle investors as mediocre news, lunacy in Washington D.C., and threats of nuclear war with North Korea seem to be hitting the headlines on a weekly, if not daily basis. One would think that with these types of events going on, the markets could easily be in free-fall; but for the time being, it seems the exact opposite is happening. Per bigcharts.com, the markets continue to grind to all-time highs on the Dow Jones Industrial Average to higher than 22,000. In previous writings, I eluded to the possibility that the next great crash probably won’t come until everyone stops asking about the next crash. We may need to be wary of getting too comfortable with the markets parading higher.
In one recent week, I had two clients ask about going to the sidelines, and two ask about taking out a mortgage at 4% to use the proceeds for market investment where they may get a much higher return. This behavior may reveal the state of America and some of its citizens. In terms of investing, one group thinks the world may be ending and the other group thinks it’s just starting to get good. So, is this an indication of too much bullish sentiment that I was looking for in past articles? Not really; I’m looking for more of a 5/1 ratio of people wanting to get in on this huge bull market before I would be concerned about a major pull-back. That isn’t to say that we may not see one here in the next year or so – but for now, the sentiment I feel is still tenuous at best.
Regarding answers to both of my clients’ questions – one about going to cash, and one “betting the farm” on a market move higher, my response was the same: “I don’t think that would be a great idea at this time.” Wanting to go to cash because of geopolitical tensions tends to be an emotionally driven response to the situation with North Korea. I would argue that investment decisions based on emotion usually don’t end up with the result originally intended. In the past, many sophisticated businessmen have made money by investing with borrowed funds; but these investments may not have been put into something as erratic and unpredictable as the stock market.
If you’re anxious about the markets or the different threats your portfolio may face, I would suggest you meet with your financial advisor and take a hard look at your current asset allocation to ensure that your investments match your risk tolerance and long-term objectives.
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