Stock market highs: Six things to consider now

December 2013


The U.S. stock market has recently reached all-time highs. Through the Q&As we write for various publications, we hear from a fair amount of people who either do not have an advisor, or their current advisor is not very good. Many seem to think that because we are in uncharted territory, drastic action is necessary.

Because our firm works only for our clients, not any entity in the financial services industry, we must focus on what is best for each client’s unique needs and circumstances. Hence, we find ourselves in disagreement with the drastic action recommendations.

Because our firm works only for our clients, not any entity in the financial services industry, we must focus on what is best for each client’s unique needs and circumstances.

In any market and economic environment, there are actions likely to pay off and others likely to be costly. When warranted, we take the actions we believe to be in your best interest. That said, the end of a strong year is an appropriate time for some reflection. Here are a few considerations gleaned from the correspondence we have had with readers of our Q&A columns.


It is unfortunate that some lament, “A new high? Oh no!” To this we say, “Smile.” An all-time high is a good thing. All-time highs are what we want when we enter the market. Stocks are supposed to go up. New highs are a cause for celebration, not anxiety or fear.

True, stocks do not go up forever but it is also true that stocks have never failed to recover and reach new highs after a decline. Never. Not once during the many times we were told, “This time is different.”  We will see a drop in the markets, maybe soon, maybe not. Regardless, the longer the time frame, the more likely you will see more new highs not long after a decline and you will be rewarded for owning stocks.

Enjoy your profits

Stocks are notoriously risky. By owning them in a prudent fashion, you have been rewarded for bearing the risk. A rise in the stock market means you may have more in stocks, and therefore a riskier portfolio, than desired or needed given your goals. When the market has done well (or badly), discipline is often needed.

Depending on many factors unique to each family, if we have not rebalanced your portfolio recently, there is a good chance we will before year-end or early in 2014. Tax rates on capital gains are low, even non-existent for some taxpayers. We will pick the most favorable tax year to reduce the tax impact further if we believe incurring taxable gains is in your best interest.

Been out of the market? Get in prudently

There are some tactics one can use that may help minimize anxiety as one enters the market, such as dollar cost averaging, but those things are only a temporary possible remedy. The best thing to do is learn what it means to be a true investor. We are happy to teach how markets work and how to keep them from making one nervous.  Hint: if you expect the markets to be crazy, when they act up, it won’t be all that disturbing. It will be normal.

This is one reason why financial planning and goals-based investing is so valuable. We have certainly heard from a number of readers of our Q&As who have been afraid to get into the markets since the financial crisis. It is a near certainty that their investment assets will not support their long term goals. After inflation and taxes, safe holdings simply should not be expected to return much. Until they align their investments with their goals, their odds of success are poor.

Even at all-time highs, stocks are more likely to stay ahead of inflation over time, and do so by a larger margin, than safer, more stable investments. Stocks are for the long run. The longer your time frame, the better your chances of a good result. No one will ever have a longer time frame than they do today. To the extent there is a need for assets to maintain one’s purchasing power over time, there is a need to own stocks. If someone has been out of the market because of concern that the market is about to drop, they are focusing on the short term. A short term focus is a key characteristic of speculating. Invest, don’t speculate.

Percentage of Periods in Which Pre-tax Returns Beat Inflation (CPI)

Rolling periods January 1926-October 2013. Data derived from the Center of Research in Securities Prices, University of Chicago

Rolling periods January 1926-October 2013. Data derived from the Center for Research in Securities Prices, University of Chicago

Note: The average pre-tax annual return over inflation for T-bills has been approximately 1/2% while the pre-tax return for stocks has been over 7%.

Maintain perspective

In addition to hearing from those nervous about the markets, we hear from those quite enthusiastic about the market continuing to rise. They want to put more money into stocks, especially since interest rates are so low. This viewpoint is another example of how there are always both buyers and sellers. The enthusiastic can buy from the nervous.

Why accept ½% interest when stocks are paying off so nicely?  Well, because the stable holdings like cash, CDs, and bonds pay little interest but are not as likely to drop significantly in value as stocks often do.  Those holdings are in the portfolio expressly because they provide stability. Stocks are simply not a good substitute for stable holdings.

According to a study in 2013 by Dimensional Fund Advisors, the attainment of a new market high has not resulted in a statistically significant difference in the frequency of either a fall or a rise in the market compared to days when the market had not been at a high. How much of a household’s assets go into stocks should be a strategic decision, not a tactical one based on what one hears or feels today about the near term.

Dimensional Fund Advisors, 2013

Tune out the pundits

Whether you are fearful of a market decline or excited because you think the market has further to climb, a significant contributor to your belief is likely something you read or heard a pundit say. The unadvised tend to find pundits fascinating. Do not take the pundits too seriously. Economist John Kenneth Galbraith said it well, “The only function of economic forecasting is to make astrology look respectable.”

There are those that like to take the opposite view of whatever any particular commenter has to say. It has to be that way. Differing opinions are the normal state. If it seems like everyone is nervous or enthusiastic, you may be exposing yourself too much to one side.

Tuning into market predictions can make you very bullish or very bearish. Financial media is designed to grab your attention and stir your emotions while sounding sensible and important. This is so you will keep consuming it and advertisements can be sold.

Remember, the frequency of rises and falls has not been affected by the attainment of new highs. If you think it is, you are probably paying too much attention to financial news. Actually, most of it is not news, it is just noise. Tune it out or at least refrain from taking it so seriously.

Focus on your goals

The best portfolio decisions are made with relevant information, proper perspective, and emotions kept in check. A thorough process methodically and objectively assesses the situation and demands evidence, not anecdotes or opinion.

Sound financial planning intelligently chooses what type and how much risk in a portfolio makes sense for reaching a given family’s goals. If the goals have not changed, a sound portfolio does not require an overhaul. If the goals have changed, portfolio changes should be made based on the new needs, not a guess about near term market movements.

If you have any questions or would like to discuss this further, please give us a call or send us a note. We would be happy to hear from you.

To receive emails notifying you of new posts – no more than monthly – fill out the subscription information in the sidebar to the right.



 Contact Us

Moisand Fitzgerald Tamayo, LLC is an Orlando, Tampa and Melbourne, Florida based fee-only financial planner serving central Florida and clients across the country. Moisand Fitzgerald Tamayo, LLC specializes in providing objective financial planning, retirement planning, and investment management to help clients build, manage, grow, and protect their assets through all phases of one’s life and the many transitions in between. If you have any questions or would like to discuss anything further, please give us a call or send us a note. If you are not a client and wish to receive emails notifying you of new posts – no more than once per month – fill out the subscription information in the sidebar to the right. For more frequent updates, follow us on FacebookLinkedIn, or Twitter.  

Important Additional Information & Disclosures

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Moisand Fitzgerald Tamayo, LLC-“MFT”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. 

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from MFT. 

Please remember that if you are a MFT client, it remains your responsibility to advise MFT, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. MFT is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. Tax advice is given only to clients and only when agreed to by MFT. A copy of the MFT’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request.

Please Note: MFT does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to MFT’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Please Note: Limitations:  While MFT does NOT pay for recognition, awards, or publicity, neither rankings and/or recognition by unaffiliated rating services, publications, or other organizations, nor the achievement of any designation or certification, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if MFT is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers. No ranking or recognition should be construed as a current or past endorsement of MFT by any of its clients.  ANY QUESTIONS: MFT’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including providing the criteria used for any reflected ranking.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your MFT account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your MFT accounts; and, (3) a description of each comparative benchmark/index is available upon request.


About Dan Moisand

Dan Moisand is a fee-only financial advisor with Moisand Fitzgerald Tamayo, LLC. He is a regular contributor for multiple outlets, including Florida Today, MarketWatch, and The Wall Street Journal. His writing and financial advice have also been featured in Financial Planning, Investment Advisor, Wealth Manager/Advising Boomers, Forbes, Smart Money, and The New York Times, among other publications. He is the only two-time winner of the Journal of Financial Planning’s “Call for Papers” competition and has been named a top financial planner and advisor by multiple publications. Investment News named Dan one of the “twenty most influential men and women” in the history of financial planning. He currently serves on the Board of Directors for the CFP (Certified Financial Planner) Board.


As a Sanctuary From The Noise®, we only post information we believe timely and important to the long term financial success of our clients. Follow us to receive emails - no more than once a month - about new posts.

We keep your information private and make stopping our emails as easy as starting them.

Something went wrong. Please check your entries and try again.