With NASDAQ Near 5,000 Again, Risk Should Be Top Concern for Investors

Risk Concern for InvestorsCurrent Investing Environment Positive for Stocks, but for How Long?

It’s really tough to quantify this stock market. Even with mediocre domestic and international economic news and lackluster corporate news, we’re now at NASDAQ 5,000 again.

Clearly, the fundamental backdrop remains mildly positive for equities, with continued low interest rates and a global central banking system set on helping capital markets any way they can.

The two stock market indices to follow closely remain the Dow Jones Transportation Average and the Russell 2000 Index. These two averages led the stock market in the January 2013 breakout, and their confirmation is key to the primary trend.

Also notable is the continued strong performance of the NASDAQ Biotechnology Index, which has been trekking upward consistently since September of 2011. (See “4Q14 Earnings Season Uneventful; Five Stocks to Consider for Steady Return.”)

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Given where the broader stock market has come from, it is difficult to suggest that new money jump on the bandwagon. After all, this is a market that hasn’t really experienced a full-blown, meaningful price correction since the summer of 2011. The stock market is due for another, of course, but it will take a material catalyst for this to happen. A big surprise from the Federal Reserve seems unlikely.

The dramatic drop in oil prices did affect investor sentiment in a meaningful way. And it’s still doing so to some degree. What the stock market always wants is certainty. Traders and speculators can deal with change, but only incrementally.

I’m concerned that this stock market is getting ahead of its earnings growth potential, recognizing that U.S. equities still offer global investors some of the best investment-grade stocks.

So what is there to do now with the stock market choppily pushing higher?

Risk: Why It Should Be Your Top Concern and How to Limit Your Exposure

For someone whose portfolio is fully invested, concentrate on your investment risk. Risk is something that typically gets renewed attention after a major meltdown in asset prices. With the stock market breaking new highs, now is the time to put on the brakes and evaluate each and every one of your equity positions.

If you work with a “full-service” broker, now is the time to rattle their cages and ask them to review your holdings from a portfolio perspective and quantify your exposure for risk. You can even ask to have someone from the firm’s research department, or even one of the firm’s registered portfolio managers, review your holdings independently. If they’re not willing to do this for you, maybe it’s time to start looking into managing your own investments.

It’s been easy to become a little complacent in a world of extreme monetary policy stimulus. But it might be time for some portfolio tweaking. Perhaps it’s time to cull some positions.

Is now the right time for more exposure to the energy sector with the dramatic pullback in oil prices? Is it time for more master limited partnerships in your holdings? What about putting Tesla Motors, Inc. (TSLA) on your watch list? What about the momentum in cyber-security stocks?

A full-service registered broker should be answering questions like these specifically as they pertain to your personal situation. If they aren’t or won’t, maybe it’s time for a portfolio review from the neighborhood competition or perhaps it’s best for you to take your investments into your own hands. Either way, now is the time to start reviewing your portfolio and making some decisions.