Since the start of the year, the Dow Jones Industrial Average has broken through 20,000, the S&P 500 has soared higher than ever and the S&P/TSX Composite Index has also reached an all-time high. That has many investors wondering where things might go from here and how to invest in a soaring market.
Many people point to Donald Trump’s seemingly pro-growth policies as the reason the market has continued to climb this year. But the rally has been going on for far longer, says Steve Rogers, Investment Strategist with Investors Group Investment Management. “The recovery from the 2008 global financial crisis has been steady,” he says. “Certainly, there have been ups and downs but when certain sectors were down others picked up the slack.”
There are many reasons why the market has continued to rise over the last several years including low interest rates making stocks more attractive than low-yielding bonds and companies buying back their own stock. More recently, the gains have been driven by improved company earnings growth, which is usually the best reason for market gains.
Despite the strong gains this year, the market doesn’t show signs of slowing and is likely to continue to grow for an extended period, says Rogers. “Barring political risks, I believe this uptrend will be around for two or more years at least,” he says.
While every investor likes rising markets, those who haven’t paid much attention to their portfolios could suddenly find themselves in far more stocks than they had originally wanted. Say you have 50 per cent of your money in stocks and 50 per cent in bonds. As equities rise, that asset mix will start to shift – you could end up having 70 per cent of your dollars in stock and 30 per cent in bonds.
Just look at how the S&P 500 has shifted since 2008. In 2008, the S&P 500’s energy sector made up 13.3 per cent of the index. As of last December it accounted for 7.6 per cent.
Over that same period, the technology sector grew from 15 per cent to 20 per cent, and the consumer discretionary sector went from 8.4 per cent to 12 per cent. “With shifts like these, your portfolio definitely warrants a review,” says Rogers.
It’s a much better strategy to continually rebalance your asset mix than to jump into stocks just because the market is going up. If the market falls and you’re too heavily weighted to equities, you could lose more money than you’d like.
Many people are uneasy about making investment decisions on their own. That’s why it’s always a good idea to work with a professional advisor who can help you identify investment goals, develop and maintain a suitable asset mix, and select the right investments for your personal situation.
This column, written and published by Investors Group Financial Services Inc. and Investors Group Securities Inc. presents general information only and is not a solicitation to buy or sell any investments. Contact your own adviser for specific advice about your circumstances.