Finishing the week were all three indices posting record closing highs, extending their recent run of records, and the Dow, which broke above 23,000 this week, registered a sixth week of gains while the Nasdaq posted four weeks of gains. Initial jobless claims, a way to measure layoffs, sank by 22,000 to 222,000 in the week ended Oct. 14. That’s the lowest figure since March 1973 and well below the 244,000 forecast. The U.S. labor market is the strongest in at least a decade in a half, reflecting a sturdy economic expansion now in its ninth year. The 4.2% unemployment rate is the lowest since 2000 and the biggest complaint among business leaders is a shortage of skilled workers to fill a record number of job openings.

With continuous stream of positive data flowing in, two key questions for long term investors are:

1. How to control the risk in a portfolio near term in the event of a correction?

2. Can one expect this type of returns over the long term?

Future Wealth’s View

While there are a plethora of complex risk-control strategies, the simplest is always the most effective. That means finding strategies that can be managed easily while allocating between a mix of conservative and aggressive risk-control strategies. This includes frequent portfolio evaluation, a healthy cash position and downside protection.

The answer to the second question is bit more sobering. While both the Dow and the S&P have returned over 14% year to date and Nasdaq is well above 20%, stock market returns over the past 30 years range from 3% for the least riskiest to only 10% for the most riskiest assets. We, at Future Wealth, opine that during a late-cycle environment, such as the one now, stocks are likely to over-perform relative to long-term return expectations as valuations overshoot. As such, we believe continued high returns are increasingly going to be hard to achieve without taking on a lot more risk which could put one’s portfolio out of whack relative to their own risk threshold.

It is said that “It is better to be lucky than good”, but now is the time to be both lucky and good.