Some thoughts as the Dow reaches 20,000

A 20,000 Dow – What does it mean?

As with any milestone number, the Dow approaching 20,000 has many people excited but not sure what to do.  Should we buy in now because the stock market will go higher?  Or should we take gains to free up cash in case the market declines?  The simplest answer here is to do nothing.  If you or your advisers have been keeping an eye on your actual-vs.-target allocation, your investments should be in line regardless of the big milestone.

However, there are some things to consider:

  1. If you have cash available, it may be advisable to invest now if you have a long time horizon; when looking long term, it is best to invest regardless of current market levels.
  2. Is it riskier now to be invested in the stock market, as opposed to bonds? Not necessarily, as bonds can be risky too. Again, consider the timing of your goals and allocate accordingly.
  3. With a new president taking office in 2017, it may be advisable to wait until next year to take gains, to take advantage of capital-gains rate cuts proposed by the incoming administration.

Source: WSJ