Most sectors are seeing record highs in the wake of the American election, which may mean a number of your investments may be growing. Those who are nearing retirement in Irvine and Orange County may be asking their retirement planners what this growth means for their retirement assets.

First, it’s important to grasp just why it is that the stock market is rallying the way it is. It is relatively intuitive to view market dips as relating to investor fear. We may be more likely to assign market rallies as indicative of a more systematic “Health” in the economy. During a rally, the economy may or may not be healthy; what is more at play is emotion. CNN Money keeps a Fear and Greed index, and it’s an interesting lens through which to view the fluctuations in the market. Currently, the sentiments of investors trading on the markets fall into the “extreme greed” category. A month before (pre-election) the emotion driving the market was fear of the unknown.

In the absence of fear, investors tend to push for returns, which has the ability to overvalue stocks. A way of measuring this effect is through looking at the price of any given stock in relation to the company’s annual earnings. This is called the price/earnings (or PE) ratio. As investor “greed” grows, the PE ratio will grow with it, meaning you’re paying more for the stock. Stocks with a lower PE ratio, in this sense, are a better deal because they are priced closer to the value of their current earnings. The current PE Ratio for the S&P 500 at the time of this writing is $25.84, which is relatively high¹. There’s no suggestion that the PE ratio will continue to rise to the record levels of the dot-com bubble of 2001 and the sub-prime lending crisis of 2008, but it’s something to be aware of.

That is why we must be extremely selective when buying into the market. For many of our clients, we are specific by buying into sectors of the market instead of buying into the overall markets through an index fund.

So, does all this mean we should brace for the worst? Not Necessarily! No one is a fortune teller, and more importantly, the healthy stock market is making retirees money. There is absolutely no way to tell when any overvaluation will be corrected by a market downturn. In order to protect your nest egg, your number one strategy should be to ensure that you have a strategy and that your portfolio is generally designed to weather market volatility. And so, if there is any lesson for us to learn from the current climate, it’s to be aware and rely on the investment strategies you already have in place. If you’re looking for a retirement planner in Irvine to help you get those investment strategies in place, Miramontes Capital is here to help. Give us a call today.


¹http://seekingalpha.com/article/4029706-investor- greed-hurt- retirement

Miramontes Capital is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Miramontes Capital and its representatives are properly licensed or exempt from licensure. This video is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Miramontes Capital unless a client service agreement is in place. Miramontes Capital is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Miramontes Capital and its representatives are properly licensed or exempt from licensure. This video is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Miramontes Capital unless a client service agreement is in place.