This article was published in the New Haven Register on May 27,2018.
The stock market has entered the 10th year of a bull market no one saw coming. It was March 9, 2009, when the Dow Jones average bottomed out amid the historic financial crisis that started in 2008.
Since that time stocks have nearly quadrupled in value as investors have enjoyed the second-longest bull market in history, now just behind the 1990s bull run that was fueled by tech stocks. (Some analysts claim the U.S. enjoyed a bull market from 1982 to 2000, but most date it from 1990 to 2000.)
The Dow closed at 6,547 on March 9, 2009. The S&P 500 Index dropped to 677.
A bull market is defined as a sustained period of rising values, and a common definition is a period of rising values that follows a 20 percent decline and is followed by a 20 percent decline, known as a bear market. A 10 percent decline, which markets suffered earlier this year, is known as a correction.
Of course, the question on everyone’s mind is how long the current bull market will continue. The more time passes, the more nervous some investors get. As the Federal Reserve eases interest rate restrictions and the economy continues to strengthen, headlines have begun warning about inflation. President Trump’s tax cuts and proposed trade tariffs have added fuel to the fire.
The simple truth is that there is no way to know when stock values will fall at least 20 percent, or how much they will fall. The world economy is complex, and there are too many interwoven factors for a prognosticator to take into account. So you don’t need to worry about headlines and newscasts warning about a sudden crash or making you feel like you’re missing out on potential gains.
In 2008, nearly all market forecasters predicted a positive year for stocks, just before values suffered an epic crash. And in 2009, most forecasters predicted the market would fall even further than it did.
History shows that this bull market will end at some point, values will fall over some period of time, and then values will rise again. If you speculate over the timing, you are investing based on emotions such as fear and greed, and that is not the way to secure your financial future.
A better course is to have a long-term financial plan in place that takes account of market variables, places your assets in a diversified portfolio, and includes tax planning, retirement planning and estate planning.
Remember to practice “safety first” by creating a cash account that can function as an emergency fund, with six months of living expenses minimum. Periodically assess whether you need to rebalance your portfolio. Stay calm and stay the course.