What to do as the Dow Jones approaches 20,000?
With
the Dow Jones Industrial Average approaching 20,000 and the ASX All Ordinaries
Index reaching its 12-month high, many investors are wondering what they should
do from here. Some are wondering if they have missed the run, others are asking
if they should take profits at these levels.
The
short answer to these questions is that investors should do little different as
a result of this milestone level. This is a timely moment to remind investors
of a basic but often forgotten quality of investing. Investors should continue
to invest with a longer term outlook rather than trying to time the market.
Whether
investors enter the market here or if they should take profits here has nothing
to do with these milestone numbers. Instead investors should keep in mind
things such as the timeframe of their financial goals and their tolerance to
investment volatility.
Those
saving for a distant goal, such as saving for retirement or their children’s
education should look to start investing right away. For those who are aiming
to retire soon, they could consider decreasing exposure to growth assets if a
short term shock could be detrimental to their retirement goals. Investors
could also consider rebalancing portfolios from asset classes that have
appreciated into other asset classes to ensure the mix is still in line with
their risk profile.
Too
many investors are tempted to buy the market during bull markets but flee the
market during a correction. This results in buying high and selling low.
Instead, investors should keep in mind things such as their investment time
horizon and the tolerance to ride market ups and downs. It is better to have a
rule based investment approach than to make investment decisions based on
emotion.
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