Pensacola, FL asks…Mitch, the bull market is in its 7th year – is the next bear around the corner? When is it coming and how can I prepare?
Thanks for the question. Know that bull markets don’t have to die of old age. Who’s to say this won’t be the longest bull market in history? It’s possible. Investors should not make defensive portfolio adjustments simply because it ‘feels like’ the bull market is ‘due.’ This is now the 2nd longest bull market in U.S. history (behind the 1987-2000 bull) and fundamentals suggest this current bull won’t end this year.
The decision to lower equity exposure should hinge more on your age, tolerance for risk, and cash flow needs versus a forecast for timing the next bear market. In other words, investors are generally best served by allocating investments in their portfolios based on factors they know— investment objectives and time horizon. Keep it simple.
The other thing we know is that, over time, stocks have trended higher than other asset classes and have delivered consistently positive returns over the long run. You can’t find any 20-year period in history where stocks delivered a negative return. Why try to get cute with the market and risk not generating that positive long-term return? Think of it this way: trying to time the market actually decreases the likelihood you will generate a long-term positive return. In my view, it’s not a risk worth taking.
Tooting our own horn here for a minute…the Zacks Investment Management approach is to build portfolios based on quantitative research and diversify and allocate investments according to one’s risk tolerance and timing for needing those investments in the future. We’re extremely proud of our performance track record, especially given our focus on managing downside risk for our clients. Pensacola, I hope you’ll take a closer look at how we go about ‘taming’ the bears and driving performance—it’s about putting the ‘math’ and subsequent insights to work every day so clients can rest easy every night.
Disclosure