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How to Handle Another New Market High

Roger Wohlner

The stock market rally continues and is now more than four years old. The Standard & Poor's 500 index reached its low point at 677 on March 9, 2009. The index has risen some 144 percent off of its lows and continues to set records along with the Dow Jones industrial average.

While the market's run has been great, I recently saw a survey from Gallup saying that 52 percent of U.S. households own stocks which is historically low. In contrast the number was 62 percent five years ago. Whether you are currently invested or deciding whether to invest here are some thoughts as to what you should be doing now.

Review and rebalance your portfolio.

This should always be at or near the top of any investment to do list, but in this type of market rebalancing is critical. A diversified portfolio could easily be overweight in equities if you haven't rebalanced in awhile. Rebalancing and asset allocation are about risk control. While it might be tempting to let your winners ride, hopefully something was learned from the stock market downturns of 2000-2002 and 2008-2009.

Review how your progress towards your broader financial planning goals.

Review your progress toward your goals such as retirement and saving for college. For example, if you find yourself farther along than your plan calls for, perhaps it is time to reassess your investment allocation and lower your investment risk profile.

Look to upgrade your portfolio.

A rising market can make even subpar funds or stocks look good. Take the rebalancing process a step further and use the market rally as a reason to review your portfolio and develop a strategy to weed out some of the "dogs." Investments held in tax-deferred accounts such as an individual retirement account will have no tax implications. For your taxable accounts, you might be able to offset any gains that might result by selling holdings with losses.

Is it time to invest your cash?

Like many questions in the financial planning world the answer is, "it depends." If you are 30 years old and have had your 401(k) in cash, you should not only rethink this you should be ashamed of yourself. Your retirement investment horizon is 30 or more years and you frankly shouldn't be the least bit concerned about the next market downturn or even the one after that. You are wasting the greatest retirement planning gift of all: the gift of time.

A major financial services firm has been running a television commercial that shows nicely dressed middle-aged couples in their financial adviser's office saying that maybe this is the time to get back into the market. As an adviser, these commercials are disturbing to me on several fronts. If these folks have been working with an adviser they should fire this person immediately.

That said the decision and the process to invest cash that has been sitting on the sidelines for say a 55-year-old within 10 years of retirement is not as straightforward as for the 30-year-old. The best way to start the process is to hire a fee-only financial adviser and have them prepare a financial plan for you. Frankly if you have been out of the market for the past four years you clearly need a plan and some professional guidance.

It seems that extreme market swings are becoming more the norm than the anomaly. To be a successful investor in this "brave new world" you need a plan and a strategy, and you need to tune out much of the noise created by the financial media when markets hit new highs.

Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides financial planning and investment advice to individual clients, 401(k) plan sponsors and participants, foundations, and endowments. Roger is active on both Twitter (@rwohlner) and LinkedIn. Check out Roger's popular blog The Chicago Financial Planner where he writes about issues concerning financial planning, investments, and retirement plans.

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