Markets Are Soaring: Is It Time to Dial Back Your Risk?

The stock market’s latest surge has been dramatic.

After tumbling 19% in April, the S&P 500 has rebounded sharply, closing at a record high of 6,173.07 on June 27. According to TheStreet, that marks a full recovery from this spring’s near-bear-market drop.

It’s the kind of V-shaped recovery that leaves some investors wondering whether they missed out or whether danger still lies ahead.

What record highs mean for your retirement savings

If you have a 401(k) or IRA, your balance probably looks a lot better than it did this spring. The S&P 500 gained over 20% in both 2023 and 2024, lifting many retirement accounts, TheStreet reports.

But those gains have also pushed valuations higher than usual.

The index now trades at 21.9 times forward earnings, well above its five-year average of 19.9. When prices outpace profits, future returns often lag. Markets can stay expensive longer than expected, but the easy gains may already be behind us.

Your retirement timeline matters. If you’re decades away, short-term swings may not matter much. But if retirement is five to ten years off, now might be a good time to reassess your comfort with risk.

Rebalancing versus riding it out

The temptation to adjust your investment mix when markets reach extremes is powerful. Some people see record highs as a selling opportunity, while others fear missing out on more gains. The smartest move may be somewhere in between.

Start by checking your current mix. If you initially targeted 70% in stocks and 30% in bonds, the rally might have pushed you closer to 80% stocks. That’s more risk than you intended.

Rebalancing involves selling some winners and reallocating funds to slower performers, a disciplined approach that allows for selling high and buying low.

Younger investors with steady incomes can usually stay the course. Ongoing 401(k) contributions apply dollar-cost averaging automatically, buying more shares when prices are low and fewer when they’re high.

Those nearing retirement may want to take a more cautious approach. This doesn’t mean selling all your stocks, but gradually shifting gains into short-term bonds or money market funds could reduce risk.

According to TheStreet, the Federal Reserve may start cutting rates as soon as September, which could benefit those holding cash or short-term investments.

Forces driving today’s market

Several factors are keeping this bull market alive despite stretched valuations. Tech giants continue pouring billions into artificial intelligence infrastructure, with Amazon, Meta, and Microsoft all maintaining aggressive spending plans, according to TheStreet.

The Fed also appears ready to resume cutting interest rates, possibly as soon as September, which typically supports stock prices.

But risks lurk beneath the surface. TheStreet reports that inflation remains stuck at 2.7%, above the Fed’s 2% target.

Trade tensions could resurface at any time. Meanwhile, market sentiment has swung from April’s “extreme fear” to today’s “greed,” a shift that could signal excessive optimism.

Your action plan for navigating all-time highs

Rather than making dramatic portfolio changes based on market milestones, consider these measured steps:

1. Review and rebalance quarterly. Set calendar reminders to check your allocation every three months. If any asset class has drifted more than 5% from your target, it’s time to rebalance. This disciplined approach keeps emotions out of investment decisions.
2. Stress-test your investments. Ask yourself how you’d feel if stocks dropped 20% tomorrow. If the thought makes you queasy, you might have too much risk. Online retirement calculators can show how various market scenarios might affect your retirement date.
3. Keep contributing, but stay flexible. If you receive a bonus or tax refund, consider holding onto some of the cash rather than investing it all at once. Having liquidity gives you the option to buy during a future market dip or respond to other financial needs.
4. Focus on what you can control. Market timing is notoriously difficult, but you can control your savings rate, investment costs, and tax efficiency. Maximizing employer matches, using low-cost index funds, and taking advantage of tax-advantaged accounts may matter more than perfectly timing the market.

The S&P 500’s record high is certainly worth noting, but it shouldn’t derail a well-thought-out investment strategy.

History shows that investors who stick to their plans through market cycles generally fare better than those who chase performance or flee during downturns. Whether this rally continues or stalls, having a clear plan and the discipline to follow it can help support your long-term goals.