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Stock Market Reaching Highs: Time to Exit?

This article was written by in Investing. 8 comments.


On November 12, the world was still reacting to the election of Barack Obama to a second term in the White House. The financial media began its relentless coverage of the fiscal cliff. Market confidence was down, and so were the stock market indexes, immediately following the election results.

This seemed to me to be a good time to ramp up investing in index funds. While others are panicking, maintaining a calm outlook and a positive attitude might help my investments prevail. I wrote that it may be time to shift money into stock funds if one was waiting for the right opportunity. I took my own advice, but I was cautious. I began using some cash I had stored in money market funds, waiting for a good opportunity to invest in stocks. To me, this was it.

So far, in general, that turned out to be a good decision.

The S&P index has registered a gain of over 10% in the period starting November 12 and ending today. See this graph from Google Finance.

I don’t want to get into the business of prognosticating stock market moves. That would be a dangerous endeavor. Timing the market is sure to backfire in the long run, but I still believe in the concept of buying on what appear to be dips and looking for panic or exuberance in the market and moving against that trend.

The S&P 500 index today, Valentine’s Day 2013, is close to its ten-year high. Yet a quick survey of the major mainstream financial media outlets do not seem to have a plethora of positive stories. During what might be a peak, there might be strong opinions declaring how the stock market is back, how the Dow Jones Industrial Average will reach 40,000 by 2015, and how stocks are the only keys to building wealth. Instead, the only market related story I’m finding today is about 401(k) balances being at an all-time high, but that seems to be the result of a company producing a well-distributed press release.

Investigative journalism isn’t really important when companies can just tell reporters the news.

While November 12 was a good day to get into the market, at least based on its performance so far, I remained cautious. I starting using a dollar-cost average technique to move cash into stock (and bond) funds every other week. The automatic investments end tomorrow. As a result of this plan, I kept buying as the stock market increased. The performance of the stock funds moved alongside the S&P index. The bottom line is my performance would have been much better, and would have been close to what the S&P 500 index is showing, had I invested all I could at the start of this period. But it would have been riskier had I been wrong about the stock market’s direction.

Regardless of this performance over the last three months, what’s really important is the performance towards the end of my investment’s life, when I decide to start taking an income from the investments or when I want to sell.

With the stocks reaching their ten-year highs, I have to wonder if now is the time to start moving out of stocks and begin waiting for the next opportunity. I don’t think it’s time to exit just yet.

  • While it’s dangerous to base future predictions on past results, history says stock markets perform better when a Democrat is sitting as President of the United States. If that holds true, it could mean at least another three years of moving in the right direction.
  • I don’t see any irrational exuberance in the market that would lead me to believe there is a bubble.
  • We’re pulling out of the most expensive military occupations overseas. Military expenses drag down the economy. We may never see a World War again because they’re simply too expensive to run, but foreign occupation is an economic concern.
  • Just like the fiscal cliff, another arbitrary political deadline is approaching in March. The fiscal cliff deal pushed back the automatic budget cuts a few months. Despite the likelihood of everything being resolved in the end, this uncertainly can keep stocks down as investors aren’t sure what the future will bring.

I don’t plan to sell my investments right now, despite the stock market reaching a ten-year high. It’s possible I could be looking at this decision as a mistake down the road, but it seems that economic signals are pointing towards the stock market having more room to grow.

With the S&P 500 index reaching ten-year highs on Valentine’s Day, are you loving your stock market investments or is it time to break up?

Published or updated February 14, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 8 comments… read them below or add one }

avatar Jonas

It completely depends on your goals. If your time horizon is to invest and retire and you’re in your 30s, absolutely not, because historically, the market has continued to grow over the long term for well over a century.

If you’re retiring in a couple of years, then maybe. But again, it depends on how you’ve invested your money, and whether you’ll get annihilated with capital gains taxes in the process.

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avatar STEVEN J. FROMM

I completely agree with you Jonas. Please see my comments below.

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avatar Anonymous

I don’t try to time the market. I’m investing for the long term, so I see no need in moving my investments around every 4 months.

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avatar crashdamage1957

It makes sense to re-balance the asset allocation from time to time, and dollar cost average new money in along those same allocations. But that is something that I think makes sense to do as part of a long term plan, as you noted that you are doing, rather than allowing oneself to get sucked up into (as you also wisely note) the rather questionable “financial news reporting” hype.

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avatar Lance

I wouldn’t simply get out because they are at 10 year highs. If people got out whenever a stock market hit a high they’d lose out on reaching the new high if it eclipses the 10 year high. I know that isn’t why you’re considering getting out and is just an event to mark that the stock market has had a good run but it is something to consider.

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avatar Ceecee ♦53 (Newbie)

I’m not getting out now, I’m just starting to see daylight. But I invest in dividend stocks, so they always pay something, even if they stay the same. I have thought of placing downside limit orders just to protect gains………

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avatar STEVEN J. FROMM

Timing the market has never been possible. The focus should be on building a diversified and balanced portfolio that one can put on cruise control. The perspective is where will your investments be in 10 years, 20 years, whatever your time line may be. Timing the market just does not work.

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avatar wylerassociate ♦162 (Cent)

I’m a long term investor so I’m not going to exit the stock market. If anything, I plan on buying more stock in the future.

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