The market returns since the U.S. presidency change last year has surprisingly spurred a mini boom.
As of today, the Dow Jones Industrial Average is up 7 per cent year to date. The TSX composite up 0.5 per cent, and, more significantly, the technology-heavy NASDAQ is up 16.7 per cent.
What does this mean to you, the average investor?
It is at times like these, with uncertainty and misdirection of markets, that you need to review your asset mix and weightings of individual holdings. Even if you own mutual funds, it is important to dig deep and make sure that you do not have an overweighting of a specific sector.
There is a general rule that a portfolio should not contain more than 10 per cent in a single company. This is a prudent rule to follow so that you don't fall into the capital destroying trap with portfolio killers, like Enron and Nortel. Investors had large positions in these companies, so when the share price fell like a rock, so did people's net worth. Learn from past mistakes. If you own more than just individual stocks, such as mutual funds and ETFs, you will have to do a bit of calculating to see if you have unknowingly increased your exposure to those companies.
Now is a good time to sell some shares of stocks where you have made significant gains. It never hurts to take a profit. If you like a company that you own, where nothing has fundamentally changed with it and you have doubled your money, it would be wise to take some or all of your original capital off of the proverbial table. You could then hold the cash for the short-term or diversify into another sector.
I'm not saying I know that the markets will undergo a correction very soon. However, a confluence of factors suggest that a careful review of your portfolio now is prudent.
It is always a good idea to have some cash ready to deploy when a stock, or a market, goes on sale.