Broker Check

A New Record? Time to Think About Risk.

| October 25, 2017
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No, not for my running career, although I keep trying.  It’s a record for the stock market. 

In fact, we have set (or are about to set) two records of note this week.  Big deal, the stock market is always setting records, you say?  At least that’s the way it has seemed lately.  But this is a different kind of record. 

As of yesterday, the market set an all time record for the longest streak of days without a 3% fall.  That’s an ALL TIME record, as in EVER.  If you think about it, a 3% fall is really nothing but a blip in stock market terms, but as of Monday it had been 264 days since the market last fell by that much.  The previous record had been set in 1995.

Some other interesting facts about the markets recent complacency: 

  • As of Monday, it had been 33 days without a drop of 0.5% (ridiculous!). That is the longest such streak since 1995.
  • So far in 2017, the S&P 500 has been down by 1% on only 4 days. That is the least since 1964. 
  • We are also about to set a record for the longest streak of months without a loss for the S&P 500 (12).

What does this mean?  Well, by itself not much.  After setting the previous such record in 1995, the market continued 5 more years until its peak in 2000, before crashing back to earth.  So this complacency in itself does not spell imminent doom.  However, there is a risk that the longer the market goes without a pullback, the more likely that the pullback when it comes will be more severe. 

Long term investors shouldn’t concern themselves with swings in the market of course, but if you are approaching retirement (or already there) it is important to take a good hard look at your investment strategy and make sure you aren’t risking more than you can afford to lose.  If you are well diversified in a portfolio that is appropriate for your life situation and financial plan, then there is not much you need to do.  If instead you are entering retirement with a portfolio full of growth stocks – NOW is the time to reconsider the wisdom of your investment strategy.

Sometimes another pair of eyes can help.  At Financial Pathways we have some excellent tools for measuring investment risk.  We would be happy to analyze your portfolio, compare the strategy to your goals and your plan, and recommend strategy adjustments if appropriate.  Just give us a call to setup an online or in person meeting. 

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