The past nine years have been very kind to investors. The S&P 500 has risen a whopping 425 per cent, including dividends, during a bull market that is now the longest in history.
Last week, two of the major US stock indexes - the S&P and Nasdaq - crossed all-time highs. The Dow Jones industrial average is closing in on its record high.
We are hitting milestone after milestone: Apple just became the first US$1 trillion US public company. Unemployment is the lowest in decades. The economy grew at a 4 per cent-plus annual rate in the second quarter.
Of the 486 companies in the S&P 500, 386 beat second-quarter earnings estimates, according to Howard Silverblatt, senior index analyst with S&P Dow Jones Indices.
US stocks have been on such a tear that a portfolio that was 60 percent U.S. market big caps and 40 per cent bonds in March 2009 has grown into 83 per cent stocks and 17 per cent bonds today.
With the market tipping near its Everest, many investors, including myself, are wondering whether to continue buying stocks or, um, what? Bonds? Cash?
CNBC co-anchor Becky Quick posed the question to billionaire investor Warren Buffett on Thursday, as he celebrated his 88th birthday at a New York City restaurant. "The last time we talked to you, you said you were still buying stocks," Quick said. "Are you still right now?"
"We're buying stocks this morning," said Buffett, who is chairman of Berkshire Hathaway. "I'd rather buy them cheaper," he said, acknowledging the years-long run-up, "but I've been buying stocks since March 11th, 1942.
"I've bought them quarter after quarter," said Buffett, who is worth about US$80 billion. "Some of the buys were terrific, some of them weren't at such good times. I don't know when to buy stocks, but I know whether to buy stocks. And assuming you're going to hold them, wouldn't you rather own an interest in a variety of great businesses than have a piece of paper that's going to pay you 3 per cent in 30 years, or a short-term deposit that pays you 2 per cent?"
I am into that. I am a buy-and-hold stock investor. I am convinced that for Average Joes (or Janes), the stock market is the best path to creating wealth. But the average investor, especially a baby boomer like me, who is 62 and approaching retirement, has a more complex decision to make. A 20, 30 or 40 percent drop in the value of our stocks could put a big dent in the quality of our retirement.
Right now is a funny time. September is historically one of the more volatile months of the year. The Dow and S&P, on average, decline about half a percent during September, according to CNBC research.
Then there's the rocky midterm election coming up. And the world is back at its desk Tuesday morning, so expect a lot of news and a heavy autumn trading season on Wall Street.
I am not panicking.
"The expansion is more like a baseball game than a football game," said Paul Christopher, head of global market strategy for Wells Fargo Investment Institute. "We are in the seventh inning, or the final third of the expansion. It can go on for another two years."
The conventional playbook is to hold a diversified portfolio of domestic and foreign stocks, some bonds and a stash of cash so you can cover a few months of expenses.
No sudden moves.
One commonly used metric, the price-to-earnings ratio, suggests stocks are not so expensive. Based on its past 12 months of earnings, the S&P 500's current PE of 24 is less than its PE average of 25 since 1990. Bears might argue that stocks have been overpriced since 1990.
"It's all about sleeping well at night," said Daniel P. Wiener, chairman of Adviser Investments. "At some point, there will be a pullback. But the pullback may not come before the market is up another 10 per cent. If you have a well thought-out investment plan, then you don't change anything. If you don't, then this is a perfect time to put one in place. Don't shoot first and aim later."
I sleep pretty well at night, because my wife and I have had an investment plan for several decades, which includes our faith in the stock market.
But that doesn't mean we are immune to the gyrations, especially as we get older. When I was 50, I viewed bear markets as opportunities to buy more stock at cheaper prices. I don't think that way any more. A five- or 10-year stock market winter frightens me.
Whether or not to stay put "really comes down to life stage," said Christine Benz, director of personal finance at Morningstar. "People under age 50 can reasonably stand pat with a heavy equity portfolio of at least 60 per cent. Older investors approaching retirement should be taking a hard look at their asset mix."
Older investors like me "might want to take some chips off the table from an asset class that performed incredibly well for over a decade," Benz said. "You may not participate in every little bit of a future equity market gain, but you want to protect yourself so that when you begin spending from your portfolio, you're never going to have to touch anything that has fallen."
"US growth stocks such as technology - think Apple, Facebook, Google parent Alphabet, Amazon - have had a very strong rally. Meanwhile, some US sectors, such as big, dividend-paying energy, financials and consumer goods companies, known as value stocks, have not done as well. Foreign shares have done less well."
A portfolio that was 50 per cent total U.S. stock market and 50 per cent total international stock market in 2009 would be 64 per cent U.S. and 36 per cent foreign today.
"It seems reasonable to rebalance into the part of the equity market that haven't performed as well," Benz said. "Value stocks continue to have a long, dark night. Foreign has underperformed, as well."
Another way to rebalance is to take the cash distributions from your mutual fund, put them into a cash account, and wait for the market to pull back and then buy. Or you can also take that cash and buy some of the underperforming funds out there.
Nancy Tengler, chief investment officer for Heartland Financial USA, said most folks approaching retirement age automatically think bonds are the answer.
"Bonds are riskier than we think in a rising interest rate environment," Tengler said. "So bonds become worth less. I tell my clients, 'Maybe you do want to have a healthy exposure to equities. But now is probably a time to get a little more defense.' "
Tengler likes big dividend stocks that can keep growing, like some energy stocks, aerospace companies and some older technology firms.
"Here's what makes this market so unique," Tengler said. "We're late in the economic cycle; tax reform, to a certain extent, has restarted the economy. The market is climbing these walls of worry and not looking back."