THE past nine years have been very kind to investors. The S&P 500 has risen a whopping 425 per cent, including dividends, during a bull market that is now the longest in history.

Last week, two of the major United States stock indexes — the S&P and Nasdaq — crossed all-time highs. The Dow Jones industrial average is closing in on its record high.

We are hitting milestone after milestone: Apple just became the first $1 trillion US public company. Unemployment is the lowest in decades. The economy grew at a four per cent plus annual rate in the second quarter.

Of the 486 companies in the S&P 500, 386 beat second-quarter earnings estimates, according to Howard Silverblatt, senior index analyst with S&P Dow Jones Indices.

US stocks have been on such a tear that a portfolio that was 60pc US market big caps and 40pc bonds in March 2009 has grown into 83pc stocks and 17pc bonds today.

With the market tipping near its Everest, many investors, including myself, are wondering whether or not to continue buying stocks?

CNBC co-anchor Becky Quick posed the question to billionaire investor Warren Buffett on Aug 30. “The last time we talked to you, you said you were still buying stocks,” Quick said. “Are you still right now?”

“We’re buying stocks this morning,” said Buffett, who is chairman of Berkshire Hathaway. “I’d rather buy them cheaper,” he said, acknowledging the years-long run-up, “but I’ve been buying stocks since March 11th, 1942.

“I’ve bought them quarter after quarter,” said Buffett, who is worth about $80 billion. “Some of the buys were terrific; some of them weren’t at such good times. I don’t know when to buy stocks, but I know whether to buy stocks. And assuming you’re going to hold them, wouldn’t you rather own an interest in a variety of great businesses than have a piece of paper that’s going to pay you three per cent in 30 years, or a short-term deposit that pays you two per cent?”

I am into that. I am convinced that for Average Joes (or Janes), the stock market is the best path to creating wealth. But the average investor, especially a baby boomer like me, who is 62 and approaching retirement, has a more complex decision to make. A 20, 30 or 40pc drop in the value of our stocks could put a big dent in the quality of our retirement.

Right now is a funny time. The Dow and S&P, on average, decline about half a per cent during September, according to CNBC research. Then, there’s the rocky midterm election coming up. I am not panicking.

“The expansion is more like a baseball game than a football game,” said Paul Christopher, head of global market strategy for Wells Fargo Investment Institute. “We are in the seventh inning, or the final third of the expansion. It can go on for another two years.”

One commonly used metric, the price-to-earnings ratio, suggests stocks are not so expensive. Based on its past 12 months of earnings, the S&P 500’s current PE of 24 is less than its PE average of 25 since 1990.

“It’s all about sleeping well at night,” said Daniel P Wiener, chairman of Adviser Investments, a Newton, Mass-based firm. “At some point, there will be a pullback. But the pullback may not come before the market is up another 10pc. If you have a well thought-out investment plan, then you don’t change anything.”

I sleep pretty well at night, because my wife and I have had an investment plan for several decades, which includes our faith in the stock market.

But that doesn’t mean we are immune to the gyrations, especially as we get older. When I was 50, I viewed bear markets as opportunities to buy more stock at cheaper prices. I don’t think that way anymore.

Whether or not to stay put, “really comes down to life stage,” said Christine Benz, director of personal finance at Morningstar. “People under age 50 can reasonably stand pat with a heavy equity portfolio of at least 60pc.”

Older investors like me “might want to take some chips off the table from an asset class that performed incredibly well for over a decade,” Benz said. “You may not participate in every little bit of a future equity market gain, but you want to protect yourself.”

“US growth stocks such as technology — think Apple, Facebook, Google parent Alphabet, Amazon — have had a very strong rally. Meanwhile, some US sectors, such as big, dividend-paying energy, financials and consumer goods companies, known as value stocks, have not done as well. Foreign shares have done less well.”

A portfolio that was 50pc total US stock market and 50pc total international stock market in 2009 would be 64pc US and 36pc foreign today.

Another way to rebalance is to take the cash distributions from your mutual fund, put them into a cash account, and wait for the market to pull back and then buy. Or you can also take that cash and buy some of the underperforming funds out there.

Nancy Tengler, chief investment officer for Heartland Financial USA, said most folks approaching retirement age automatically think bonds are the answer.

“Bonds are riskier than we think in a rising interest rate environment,” Tengler said. “So bonds become worthless. I tell my clients, ‘Maybe you do want to have a healthy exposure to equities. But now is probably a time to get a little more defence.’ “

“We’re late in the economic cycle; tax reform, to a certain extent, has restarted the economy.” Tengler said. “The market is climbing these walls of worry and not looking back.”

The Washington Post

Published in Dawn, The Business and Finance Weekly, September 3rd, 2018