Major stock market indices are hitting all-time high prices. There are many reasons for this continued rise in prices; some of the primary ones include:
- Economic recovery following the COVID related slowdown in 2020.
- Low interest rates drive more money toward stocks, as bonds, CDs and other income-producing assets do not generate attractive returns.
- Fiscal stimulus such as COVID-related initiatives provide checks to many Americans.
- High prices tend to create some anxiety with investors who worry that the stock market may have a difficult time moving higher. Markets “Climb a Wall of Worry” is a common investment industry saying. It is not unusual for the stock market to continue rising despite concerns that dominate newspaper headlines. This has been very true the past five years, as the polarizing political environment has created anxiety in investors. However, the past five years have proven that markets can continue rising despite political turmoil.
There are many items that tend to favor a positive stock market over the long-term that have nothing to do with political environments. Even if technological advances and productivity slow, the following will help drive global economic growth:
- Demographics. The worldwide population continues to grow, which increases the number of people who need to buy goods and can positively contribute to productivity and economic prosperity.
- Developing Economies. There are many places across the globe that continue to live without electricity and running water. Not to mention many places that do not yet have air conditioning, in-home laundry and many other conveniences that we in the U.S. have come to expect. As these areas develop, more money will be spent on conveniences.
The demographics and developing economies do not mean we can escape a year where market prices decline. This is bound to happen from time to time. However, the overwhelming long-term trend in market prices is up. When your investment accounts are at a higher level does not mean your overall financial health shouldn’t be reviewed. In fact, at these times it is more important than ever to review your financial situation and shore up your finances. Hiding those nuts for winter is always a good idea. Here are some items that are always worth reviewing.
- Emergency Fund. If you find yourself with excess funds, make sure your emergency fund is in good order. At least three to six months of living expenses should be in cash-like investments. A savings account or CD is a great place to keep these funds.
- Financial Plan. Work through a financial plan together to identify funds that can be used for your future goals; maybe this is a car, house or retirement income. We can identify investment buckets to cover these items and ensure we are taking the appropriate risk for each of these goals. Balancing cash flow, taxes and investments requires ongoing review.
- Estate Plan. Keep an inventory of assets and liabilities, like the balance sheet we work together to maintain, in order to provide a list of items your loved ones can use to make sure you are taken care of in the event of an emergency. Make sure your loved ones know where this is and work with an estate planning attorney to ensure your needs and wishes are exercised. This will significantly ease the burden on your loved ones.
- Insurance. Make sure your insurance needs are taken care of properly. If you are young and have children, be sure you have enough life insurance to take care of them in all circumstances. If your children are grown, there may be less need for insurance, unless estate taxes come into play.
Regardless of your circumstances ,it is important to review where you are. And, if you find yourself with excess funds during this time, continuing to invest in the market or pay down debt may help increase your overall financial stability for the future.
Performance Source: Bespoke Investment Group, LLC
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