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Investors may be watching the wrong indicators. When the stock markets continue to top new highs, many are prone to making poor decisions based on emotion rather than fundamentals.
It is easy to get caught up in the daily noise the media focuses on. What is the latest tweet from Washington? Shouldn't the stock market have a correction by now? These are not root causes of market fluctuations except in the short term when driven by emotion.
Take a closer look at fundamentals. This is what will dictate true stock valuation when the dust settles from the latest distraction.
On the positive side we have:
There is always uncertainty, though, that is weighing heavily on investor's minds.
Will lower oil prices start to hurt the major stock indexes? Will the economic growth worldwide continue to improve? Is there a housing bubble? What would trigger a stock market correction? How will Germany vote later this year regarding the Eurozone? Are stock prices sustainable at these valuations? Will inflation increase with full employment and wage pressures?
These are all worthwhile concerns, which make it very important to analyze your holdings for how each of these would impact you. This is a better process than just selling for the sake of trying to avoid the unknown. Each position in your portfolio should represent a goal and it is important to revisit that to make certain you are positioned correctly for your situation. If you have too many positions doing the same thing, then you may lack diversification. This could be detrimental when prices do adjust.
Keep in mind that bull markets do not die of old age but rather from an unforeseen event. Instead of guessing what and when that might be, it is better to have a solid strategy designed to keep you focused on your goals.
Patricia Kummer has been an independent Certified Financial Planner for 30 years and is President of Kummer Financial Strategies, Inc., a Registered Investment Advisor in Highlands Ranch. Kummer Financial is a 6-year 5280 Top Advisor. Visit www.kummerfinancial.com for more information. Any material discussed is meant for informational purposes only and not a substitute for individual advice.
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