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What’s going on in the stock market this week? 

Last week, we saw the Dow break through the previous ceiling that was set in may of 2015, closing at 18,516 on Friday. And remember, this happened in the seventh year of this bull market, the second longest bull market in history!

What pushed the markets so high after months of uncertainty?

We know the markets hate uncertainty, and over the past two weeks a number of events have erased much of the uncertainty that have shaken markets here and around the world. First, the Brexit vote in Britain rattled investor confidence in late June, but since the vote decisive actions have been taken – including Prime Minister cameron’s resignation, his replacement by a respected leader in the form of Theresa May, and the announcement of looser monetary policy from the Bank of England – which have assuaged concerns about the UK being a point of origin for uncertainty for months and years to come. I call this ‘shock and ahhhhh’ because investors seem to be relaxing after a period of tension and anxiety. Secondly, the June jobs report released on July 8 was pretty spectacular, announcing 287,000 new hires last month and demonstrating that the weak May jobs report was a fluke rather than the beginning of a pattern of slower job creation. Finally, the initial earnings reports from companies like Alcoa have been solid, signaling that corporate America remains in good shape. Taken together, these have boosted investor confidence after a tough spring.

This is the second longest bull market in history. Doesn’t that mean that it should be coming to an end?

That seems like a rational conclusion, but that is not how the market works. Investors base their decisions based on the underlying foundations of the market, not on some preplanned script. As a result, even as you hear more and more people ringing the alarm bells or yelling about how the sky is bound to fall, that market has remained resilient, climbing a wall of worry based on those items that we just talked about: strong job creation, healthy companies, and receding uncertainty.

None of this is to say that the market will rise forever. It won’t. The markets go up and down. What is does say is that investors remain confident that the underpinnings of the market, and the economy, remain reliable.

What should individual investors be thinking about when investing in a record-breaking stock market environment?

First things first: keep your eye on your long-term goal, which is a secure retirement. To achieve that goal through investments, you are seeking wealth creation in the market. And to get that, you have to actually be invested in the market, so keep contributing to your retirement accounts. Don’t be scared away by the rising market.

Secondly, you will want to talk to your advisor about two things: diversification and value investing. To reduce your portfolio risk, you want to make sure that your portfolio is not entirely made up of economically sensitive securities like stocks and credit-sensitive bonds. That way, if and when the market comes down from a high point like this, you won’t get walloped across all of your investments. You should check with your financial advisor to ensure you have the right balance of stocks, bonds and other investments.

Next, record-breaking market runs are a great time to focus on value investing, which is what we do at Ariel. With market booms, it makes it more expensive to invest in the market as stock prices climb higher. But remember, even in a strong bull market, some companies are still undervalued and overlooked. Speaking with your financial advisor about value investing and working with them to focus on stocks that are undervalued is a good move to make in an expensive market. 

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Mellody is President of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.


Monday Mondays: How To Take Advantage Of A Rising Stock Market  was originally published on