Markets: Catching a ride on the surging Dow

“Is it too late for investors to join the party?” asked Jeff Sommer in The New York Times. The Dow Jones industrial average hit a record high last week, prompting those who’ve been shunning stocks to wonder whether to get in on the action. Most strategists will tell you it’s better to buy when the market’s low, rather than after a new record, but there are strong arguments for believing that “the bull market may still have room to run.”

The strongest of those arguments is the Federal Reserve, said E.S. Browning in The Wall Street Journal. The central bank “has gone out of its way to boost the economy through massive injections of cheap money into financial markets,” and Fed Chairman Ben Bernanke has said he has no plans to stop. Bull markets normally don’t last more than two years, so this one, which started in March 2009, “might not be far from topping out.” But “this isn’t a normal world,” and unless the Fed decides to pull its props out from under the market, “it will take a serious shock from somewhere else to send U.S. stocks lower.”

Still, “smart investors would do well to keep a close hold on their wallet,” said Steve Denning in Forbes. After all, “the real economy is still stumbling along on artificial life support.” The Fed’s free money helps corporate profits skyrocket and keeps the economy out of recession, but it doesn’t drive real economic growth. And there are market bubbles just waiting to burst. Banks are reaping profits from a $700 trillion derivatives market that amounts to “a massive financial accident waiting to happen.” Companies are still paying CEOs and executives wildly excessive salaries, badly skewing the allocation of financial and human capital. And let’s not forget the student loan industry—a $1 trillion bubble of government-backed debt that ladens taxpayers with risk. The stock market’s “ostensible prosperity” rests on these bubbles, and until policymakers address the risks, investors should tread lightly.

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If you’re going to play the market, “force yourself to rebalance,” said Jill Schlesinger in CBSNews.com. For anyone heavily into stocks, this is a great time to sell high in order to beef up cash accounts for any short-term needs. If you work with a stockbroker or adviser, make an appointment to review your progress and go over your goals. Check how much that financial adviser is costing you, and weigh whether it’s paying off. Consider replacing the managed funds in your portfolio with lower-cost index or exchange-traded funds. Remember, “just like you don’t want to cash out at the bottom, you also want to avoid piling in at the top.”