Dec 1, 2017 4 min read

This has been a very good year for the stock market. The Dow Jones Industrial Index is up about 15 percent for the year. While this is only half of the gain of 32 percent in 2013, no investor is complaining. This gain has not come evenly from all stocks. The FANG stocks (Facebook, Amazon, Netflix and Google) have done much better than many. Corporate earnings have been a little better than expected, but the main catalyst has been hope that Washington would take steps to increase overall growth.

The big hope right now is that tax reform will be passed. While this will probably happen, no one is sure exactly what is contained in the different versions of the tax bills. These changes will have different effects on taxpayers. There are all kinds of opinions being expressed about tax reform, but we will have to wait until it is rolled out. The hope is that it will spur growth and not increase the deficit. This is what the stock market has been betting on.

This year’s market run-up has not shown much volatility until recently. We witnessed lots of new highs, some only a few points more than the day before. This is the second longest bull market in history. If it continues until Aug. 22, 2018, it will be the longest bull ever. Remember what followed the longest bull was the “Lost Decade” at the beginning of the 21st century. It took the S&P 500 12 years to earn back the losses from 2001 and 2008.

There could be some challenges on the horizon. The Federal Reserve Board is set to raise interest rates again this month. It has been doing so more slowly than it had predicted two years ago. Wage inflation is starting to grow. When you look around any of our towns, you see more help wanted signs. As employers struggle to find employees, there will be pressure to increase salaries. This will increase inflation and make it easier for the Fed to increase interest rates faster. This will not be good for stocks.

We could be facing a shutdown in Washington soon. This never has a good effect on the economy. Something that has many stock analysts concerned is the flattening of the interest curve in the market. This is when long-term bond rates get too close to short-term rates. Long-term bonds should always pay more than short-term bonds. During a recession, the curve may invert and short-term pays more. This is sometimes viewed as a warning of a slowing economy. Brexit could have a bigger impact on the world economy in 2018. This could have an impact on stock market valuations.

Investors have been rewarded, but may be too optimistic about returns from the market. Most financial firms are warning that growth rates probably will be lower. I have seen some analysts proclaim that this rally will last seven more years and just as many others claim a crash could come any time. No one can time the market.

As a prudent investor, you must make sure that your investments match your risk profile and the stage of life that you are in. Younger investors who do not need to spend their investments for many years can take more risk than retirees or someone close to retiring. Don’t let greed ruin your life. There will be a correction sometime, we just do not know when. Make sure that your financial life can survive it whenever it happens.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, contact business editor Michael Bradwell at mbradwell@observer-reporter.com.