“The Market is at an All Time High, What Should I Do”?

"In the event of a sudden drop in the market, oxygen..."

In varying forms we’ve repeatedly heard this question asked over the last several months.  When I hear the question, I tell clients, “well, it’s a good idea to ensure you are properly diversified, you review your financial plan and consider your current risk tolerance”.  If you find yourself asking this question, contact me so I can give you a complimentary risk assessment.  In this blog I wanted to share a perspective of diversification and continued perseverance that you might not have considered. When I analyze the markets and all of the available information to me, I have absolutely no idea what’s going to happen tomorrow, a week from now or a year from now.

When I look at what the Bible has to say about this question, I find my answer in the book of Ecclesiastes.  Ecclesiastes 11 starts off saying:

“Cast your bread upon the waters, for you will find it after many days. Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.  If the clouds are full of rain, they empty themselves on the earth, and if a tree falls to the south or to the north, in the place where the tree falls, there it will lie. He who observes the wind will not sow, and he who regards the clouds will not reap.”

Most of the commentaries I come across indicate Solomon is trying to teach about giving. And, maybe that’s true. When I read these texts I see a practical lesson about working hard and diversification. The first verse starts by saying “cast your bread upon the waters, for you will find it after many days”.  I think of a fisherman using bread to catch fish.  If the fisherman doesn’t cast his bread out into the water, he’s not going to catch any fish.  The second half of the verse shares that you will find your bread again after many days. If you invest in the supplies necessary to earn, then your return will come back to you in time.

The next line says “Give a portion to seven, or even to eight, for you know not what disaster may happen on earth”.  Continuing with the analogy of our fisherman, maybe he should have 7 or 8 lines in the water or fish at different lakes… In the world of investments, I see how this applies to asset allocation. An investor shouldn’t just invest in stocks or gold.  An investor should have her money properly diversified amongst stocks, bonds, cash, real estate and commodities.  Then within these five different asset classes, there are subsets of investments that an investor should consider. Maybe if investors and asset managers were utilizing this ancient advice during the dot-com crash, they wouldn’t have lost so much money. In 1999 diversification meant Large Cap stocks and bonds… That was it.

The verse clearly says a disaster is going to come, it’s just a matter of when.  I think the next verse gives us an indication of what kinds of disasters could come. “If clouds are full of rain, they empty themselves on the earth and if a tree falls to the south or to the north, in the place where the tree falls, there it will lie”. I think Solomon is saying, you never know when a flood will come. When it’s time for the clouds to empty, they will empty. I’m not so sure about the tree falling, but I imagine the tree is an impediment for you to continue traveling down a path. I imagine a tree blocking your route and you needing to exert more work to move the tree to continue in your regular work. I may be entirely wrong, but just a thought. In the investment world, floods and forest fires are absolutely disrupting people’s lives at this very moment. The wild fires in California have destroyed wine crops and flooding in Puerto Rico has eliminated the ability for the tourism industry to earn money right now.  We know these disasters are going to come. We must diversify our risk and be prepared for them.

The last verse shares that in spite of these natural disasters, we must keep working. “He who observes the wind will not sow, and he who regards the clouds will not reap.”  If you stand outside staring at the wind all day instead of making a move, working hard, and diversifying your work, you will not earn.  You will not reap your reward if you haven’t done the work necessary to win. So, if we think the market is at a high, the stock market that is, you can’t just sit idly by on the sideline and watch the wind. You need to review your portfolio, assess your risk tolerance and keep steady on your plan to accomplish the goal you’ve set forth.  

I hope this short post is helpful to your thought process about the current market high.

Disclosure: I am not a Bible Scholar.  The views expressed in this blog are my own.

Call me to schedule an appointment.

Jose Cuevas
Vice President
Wisdom Investments
847-290-0753
jose@wisdominvestments.com

 

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