What should investors do now with stocks at record highs?

AAs of this writing, the S&P 500 Index is at an all time high, having increased 15.6% year-to-date, 36.6% in the past 12 months and 57.4% % in the last three years. These are spectacular results, but every time stocks reach highs like this, many investors start to worry about the onset of a crash. Not wanting to lose their earnings, they may be tempted to make major adjustments to their long-term equity portfolios.

In this video by Motley Fool Live, recorded June 30Motley Fool contributor Brian Withers chats with contributor Jon Quast and longtime jerk Anand Chokkevalu about what changes – if any – they are making to their investing strategies with actions at levels record.

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Brian Withers: Well, with stocks at record highs, are you doing anything different as an investor? Jon, why don’t you take this one first.

Jon Quest: Yes. In your opinion, stocks are at an all time high. What gives me pause is that they are also at pretty high valuations if you look back. If you follow the S&P 500 earnings and sales average, look back on the five-year average, we’re at a very high point right now. It’s not just that they are at the top. They’re at high valuations, and it’s really made me rethink my cash position lately.

I want to have this money. I don’t want to invest high, no one does. But I don’t want to sit on the sidelines either. What I did was my family made a monthly budget for investments. I take 50% of that money, the new money, and put it in the stocks that I like right now, whether it’s a new position like Etsy or an existing position such as Airbnb – invest this money. Now, if stocks go down, I’ll be looking to invest all that new money. If we get a real crash, then I’ll be looking to take all the money off the sidelines. It’s just what I found to help my decision making. There is no magic formula. That’s just how I think about it right now.

Anand Chokkavelu: Awesome. Usually it’s probably a bit similar. It’s kind of business for me where you have a lot of times wringing your hands, looking at my stocks, asking questions, thinking and doing this ranking exercise. This is where conviction helps. But not much in terms of live action. Lots of discussions with other investors, lots of hand turmoil. On the margins at this point, if I get a new slice of money – let’s say a business I’ve bought or where I’m selling something – I might push for more value in international names to balance my growth portfolio and the United States. I’m probably going to rebuild some of the dry powder that I completely used up last year for the most part. But overall, stay the course, buy big companies with a bright future, and hold on for the long term. Just little things on the fringes that make you feel like you have action when you’re not doing much.

Withers: [laughs] I love how you explain, “It’s the usual, a lot of times of hand twisting.” [laughs] But I look a lot like you. If you buy big companies and really prioritize, I only have 19 different individual stocks, so for me, I really prioritized my best ideas. I’m pretty much fully invested now, and I’ve pretty much fully invested my entire career since I started with The Motley Fool in 2004.

As the money came in, when I worked, I put that money to work. Now that I am in a semi-retired state, I am still fully invested. I have cash, an emergency fund, and so on, so if life does come, we don’t have to sell stocks. But for me, right now, if I want to buy something, I have to sell something else. With only 19 actions that I really prioritized, it’s really hard to make that extra choice. It’s a little extra friction that helps me not to mess with my portfolio all the time. I’m looking for sales opportunities, but it kinda depends on the tax year. I have accumulated enough taxes this year, so [laughs] not planning to sell anytime soon. This is my process and what I am thinking about today.

Anand Chokkavelu, CFA owns shares of Airbnb, Inc. and Etsy. Brian Withers owns shares of Etsy. Jon Quast owns shares of Airbnb, Inc. and Etsy. The Motley Fool owns shares and recommends Airbnb, Inc. and Etsy. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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