The Dow milestone means little to long-term investors: Advisors

As the Dow Jones industrial average flirts with the 20K milestone in the Trump rally, financial advisors are yawning.

"It is just a number," said Allan Katz, a certified financial planner and founder of Comprehensive Wealth Management Group in New York. "The fundamentals of your investments as they relate to your goals and the economy is what we need to focus on."

Investor sentiment has increased sharply since the election. (See chart below.)

However, market enthusiasm is not at the level seen at the height of the dot-com bubble or the last housing boom, said Charles Rotblut, vice president of the American Association of Individual Investors and editor of the AAII Journal.

"The new highs are Mr. Market's way of compensating investors for all the volatility. It shows the value of staying allocated to stocks no matter what's going on," Rotblut said.

He noted that for the patient, buy-and-hold investor, the Dow has returned nearly an annualized 11 percent over the past five years.

Stick to your plan

A new Dow high shouldn't change your financial plan.

"There is no particular significance to a Dow milestone such as 20,000. As the economy grows and corporations do as well, eventually we will hit 25,000, 30,000, etc.," said Burton Malkiel, a renowned economist, author of the indexing classic "A Random Walk Down Wall Street" and chief investment officer of Wealthfront, a robo-advisor.

Malkiel said investors should stay broadly diversified, be sensitive to the tax efficiency of their portfolios and keep costs low.


Rebalance if needed

Now comes the hard part. If you are worried about more volatility ahead or that your portfolio has drifted too far for its target allocations, it may be time to rebalance.

Rebalancing is the sometimes painful process of selling assets that have appreciated and buying ones that have fallen in value. It forces investors to sell high and buy low. That can be especially hard to do when enthusiasm is high.

"It's virtually impossible to get investors to rebalance to a more conservative portfolio at the peak of a true bubble," said Ryan Poage, a CFP in Kansas City, Missouri. "The next bubble won't be using the price-to-eyeballs ratio like dot-coms used when the Dow hit 10,000, but there will be some other silly measure used to justify paying foolish prices."

Rotblut of the AAII recommends investors be systematic about their approach to rebalancing. He reviews his portfolio twice a year and rebalances if assets have gone 5 percent above or 5 percent below their target allocations.

"I wouldn't rebalance just because the market is hitting a milestone," Rotblut said. "However, given how much stocks have risen since the election, I think it's OK for investors to do it before the year ends."

Correction: This story was revised to clarify that the Dow is approaching 20,000.