Betting the Farm on the Dow?

NEW YORK: The Dow may be soaring to record highs, but the New York Times warns that household investors have overextended themselves and are more vulnerable to a market downturn than they have been in the past 50 years. TIME business writer Dan Kadlec offers a simple guide for investors perplexed by these conflicting signals: Look at the proportion of your personal assets allocated to stocks, and then imagine 30 percent of that evaporating in a single year. A lot of people can live with that, but those who cant might want to readjust the allocation of their investments.

The Times analyzed Federal Reserve figures and found that for the first time in three decades, Americans have more of their household wealth invested in the market than they do in their homes. Stocks are now the largest component of household wealth 28 percent and account for 43 percent of household financial assets. These percentages have more than doubled since 1990, and show no signs of falling off. Kadlec believes recent market performance has disguised the risk of investing for new investors: The last three years have been incredible, and many people probably believe this is the way its always going to be. They have to understand that it cant go on this way forever.