Investment Insights & News

The Dow Crosses 13,000, now what?

Ron Gambassi
February 28, 2012

For the first time since May of 2008 the Dow Jones Industrial Average closed above 13,000. Hopefully many readers held firm since the day of Dow 6547 in March of 2009 and have been able to enjoy the recovery in their investment accounts.

Those that have been waiting for the 2012 “pullback” to put their money to work have missed out on a nearly 8% run in the S&P 500 since the start of the year.  This investor may miss out on another two percentage point rise,  or catch a lucky break and get in when things drop a few percentage points. None of us can predict these,  or an infinite number of other possible scenarios.

So,  what’s a smart approach if you are either fully invested or if you have been sitting on the sidelines with a pile of cash?

If you are fully invested,  stay that way. You’ve heard it said countless times;  “don’t try to time the market”.  Instead,  look carefully at how your current assets are allocated. Thus far this year the market has been very kind to the stocks of large company domestic stocks. Chances are,  that part of your portfolio may have risen above its target range. You might be saying,  “but I don’t have a target range”. In that case, step back and create an asset allocation target. The end of Q1 is a great time to evaluate the asset allocation across all your investments,  in and outside of retirement accounts. It’s also a good time to rebalance if things have gotten too far out of target range.

For those with someone managing your money,  keep him on his toes by asking questions about your asset allocation during your Q1 portfolio review. If you don’t have an investment policy statement that outlines your allocation targets,  encourage your advisor to create one for your review and approval. You would never build a house without a set of plans;  similarly,  you should never invest without an investment policy statement.

What about the person who is sitting on cash waiting for the right time to get back into the market?  You should take a measured approach. Start coming back in but not all at once. Why,  because this run-up of the last eight weeks is not likely to continue for the rest of the year.

Sometimes,  when a market index crosses a big psychological barrier (like Dow 13,000) professionals start taking some profits. Institutional investors may want to lock in some profits and good performance figures for Q1. This could lead to downward pressure on stock prices due to institutional selling in the coming weeks. Not to mention the possibility of a negative effect on stocks from the newly looming concern (again) over gas prices.

Who knows which we’ll see first,  Dow 14,000 or Dow 12,000. In the long haul it won’t matter if your portfolio is created with care and managed with discipline.

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