The markets are on a roll. It’s exciting and, yes, nerve-racking.
One septuagenarian Moneyist reader is feeling rattled: “I have quite a bit of money in a mutual fund, which has done well due to the amount of tech stocks and others that have appreciated quite a lot,” he wrote. “This fund is not in a retirement account. I fear a significant decline in the S&P 500.”
“I have a considerable amount of unrealized capital gains in this fund and can’t decide whether selling some or all of it and paying the taxes makes sense, or if I should wait through the coming decline. I am 78 and retired. My wife and I have an income of $200,000 due to IRA withdrawals.”
A word of caution for him and everyone else: If you have $100,000 or $1 million in your tech-heavy mutual fund, you are sitting pretty. It will receive a step-up in basis as an inheritance. With IRA withdrawals and Social Security, this man is enjoying some well-earned gravy.
Investors should not make decisions about their portfolio based on a feared downturn in the S&P 500 SPX. You will see arguments for and against whether there is a big correction ahead. Instead, adjust your risk profile for your age and tolerance, and plan your legacy.
All that tech money won’t do you much good sitting in your bank account. Focusing on an event that may or may not happen will distort your perspective and merely create fear. That’s never a good emotion on which to buy or sell stocks, or any other asset class.
This reader is not the only one concerned about how the artificial-intelligence gold rush has caused the market to reach record highs. The tech sector, which makes up over a third of the S&P 500, is still profitable, even if many companies are burning large amounts of cash on AI.
Most of the “Magnificent Seven” companies of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia NVDA and Tesla continue to rise, even if it has not always been a smooth road. Tesla TSLA sales have slowed down in China and Europe, and the company has faced headwinds in the U.S.
Microsoft MSFT, Alphabet GOOGL GOOG, Apple AAPL and Meta META all reported quarterly results this week, giving analysts an opportunity to quiz management about their ability to justify their AI spending and the valuations that, for some, look stretched.
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There’s never a dull moment. On Wednesday, Nvidia became the first company to reach a $5 trillion market capitalization. President Donald Trump told reporters that he will discuss Nvidia’s Blackwell graphics processing units with Chinese leader Xi Jinping.
On Thursday, Amazon, whose stock performance has mostly trailed behind its “Magnificent Seven” cohorts, reported third-quarter earnings that surpassed Wall Street expectations with an acceleration in its cloud-computing business. It also raised its capital expenditure guidance.
Amazon AMZN, the country’s second-largest private employer after Walmart WMT, also said Tuesday that it’s cutting 14,000 jobs as it restructures its workforce. The company has also invested billions in AI chips, and other streamlining technology.
Apple reported fiscal fourth-quarter earnings on Thursday that beat expectations. CEO Tim Cook expects the iPhone 17 will make the December quarter the “best ever.” Alphabet’s third-quarter earnings also surpassed Wall Street’s expectations, also helped by AI.
Meta’s relatively strong third-quarter earnings, released Wednesday, were overshadowed by its AI spending. Microsoft, on the same day, posted its fiscal first-quarter earnings; investors similarly expressed surprise by how much Microsoft spent on chips.
What does that tell us? Share prices rise and fall based on fundamentals, but they also move in accordance with expectations, which can also change like the weather. Even these formerly “sleepy” tech stocks are having their moment as they benefit from the AI boom.
With the tech-stock wave, many people have benefited from that sector as if it were a separate asset class. In fact, given the size of Nvidia and the more than 50% rise in its stock so far this year, that may or may not add to people’s worries about an AI bubble.
If you’re near retirement and not using your mutual fund as income, you can afford another April-style correction. Believe me, many investors had the same concerns in April as the Moneyist reader, and wrote to this column about their desire to liquidate their stocks and invest in gold.
The average market correction (a 10% decline from a recent peak) lasts 115 days, according to Yardeni Research, a consulting firm. Although nearly half of the years since 1980 have had a correction, Fidelity says the average annual return over the same period has exceeded 13%.
According to Fidelity, the “seven-year rule” states that you should only invest money in the market that you don’t expect to need for at least seven years. “It will also help you to avoid having to liquidate your holdings prematurely, which may cause you to buy high and sell low,” it says.
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The Federal Reserve made a 25 basis point cut Wednesday, bringing the benchmark rate to a range between 3.75% and 4%, the lowest in 3 years. It’s caught between a rock (inflation) and a hard place (the labor market). Caution favors those who don’t have a clear view in the rearview mirror.
The Federal Open Market Committee did not commit to a December rate cut: “Uncertainty about the economic outlook remains elevated,” it said. “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.”
Analysts are closely watching Trump’s tariff negotiations, the jobs market, the Fed and inflation, but they are stymied by delayed economic data due to the government shutdown. Eric Freedman, chief investment officer for U.S. Bank Asset Management Group, is one such observer.
“Markets closely watch Fed interest-rate policy, which influences global borrowing and financing costs,” he said. “President Trump has frequently criticized the Fed’s reluctance to lower the short-term federal funds target rate throughout most of 2025.”
He, too, suggests staying the course, rather than reacting to market and economic trends, even in the face of a correction. “The current market environment reflects lessons from history — stay invested and diversified — despite market volatility and uncertainty,” Freedman said.
Becoming fixated on your tech stocks could lead you to make a rash decision. It’s a busy week, for sure, but sometimes the best thing we can all do is sit back and enjoy the ride. That’s why observers liken the market to a roller coaster. It’s a well-worn, if hyperbolic, cliche.
So what about streamlining your own finances? Talk to a financial adviser, obviously, but always consider your asset allocation based on your age. How much of your wealth is in stocks versus bonds, cash and cash equivalents? Do you have children who might appreciate an inheritance?
The bigger picture will inform the Moneyist reader’s views about his portfolio allocation at 78. The rule of 110 — your age minus 110 — would suggest that he should have 32% of his portfolio in stocks. Given his exposure to tech, he’s likely glad that it’s more like the other way around.
Trying to time the market, as always, is a fool’s game.
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