The stock market is starting to show signs of exhaustion and it may be a good time to rebalance your portfolio and make sure you are comfortable with the amount of risk you are taking in your investment allocation. There are several signs of exhaustion in the market.
Suppose that you’re a middle-aged professional with a 30 year retirement time horizon. Your portfolio is 100% invested in U.S. equities–it consists of 100 shares of the S&P 500, worth $187K at current market prices. Assuming that the fundamentals remain unchanged, which outcome would leave you wealthier at retirement: (1) for the S&P 500 to soar 200% in a glorious bubble-like melt-up, or (2) for the S&P 500 to plunge 66% in a brutal Depression-like crash?
In conclusion, a well-designed portfolio and not trying to overreach or be too aggressive will the key to a positive year for investors.