Should you take profits after the FTSE 250 hits a new all-time high?
Investors rejoice, the UK economy is booming, or that's what the FTSE 250 is indicating anyway.
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Unlike its larger peer the FTSE 100, which is more of a global index, the FTSE 250 is considered to be a proxy for the health of UK plc. So the fact that the index has reached an all-time high in the months following the UK's decision to leave the European Union is a telling development.
A new high
At the time of writing, the FTSE 250 index is trading at 18,731, up more than 3,000 points from the 2016 low of 15,400 and up 204% from the 2009 low of 6,000. However, the very fact that the index has surged to such a level when there's so much debate about the future of the UK outside the EU has raised some concerns.
Investors always become jittery when the market reaches a new high, and with Brexit unfolding, market participants have plenty of reasons to worry about what the future holds for UK plc.
Not the time to sell
It may seem silly to suggest, but selling is exactly the opposite of what investors should be doing in the current environment. Just because the FTSE 250 has breached new highs, it does not mean a market crash is on the horizon.
Indeed, there is some academic research which shows that when stocks hit a new all-time, high, they are more than likely to continue to push higher thanks to the momentum effect and jubilant mood among investors. What's more, one revealing study has shown that by missing just 10 of the market's best trading days, investors will cut their expected returns in half when compared to the market average annual return. There will be some investors reading this thinking that the best way to avoid such a mistake is to remain invested over the market's best trading days. But it is impossible to tell which days these are; you can only find out after they have occurred. With this being the case, investors only really have one choice, and that is to remain fully invested at all times.
Stay invested
You may think that remaining invested throughout the good times and the bad is a very lazy approach but, by remaining invested, you will be able to profit from the market's best days without the additional stress of trying to time the market. Further, if you own high dividend paying stocks, you can reinvest your dividends throughout the market cycle, which will ultimately cushion losses throughout the downturn and accelerate returns when the market rallies.
All in all, just because the FTSE 250 has reached new highs in recent days, it is not a reason to sell all your stocks. The world's best investors have made a reputation for themselves (and built a vast fortune ) by remaining invested throughout the good times and the bad. Moreover, there is academic research which shows that this is the best course of action to take.
Put simply, now is not the time to sell, it is time to take a long-term view sit back and relax.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
