Happy Birthday, Mr. Bull Market!

Arthur Stein Financial, LLC |
Well, Happy Birthday to the Bull market, now nine years old. Blow out the candles, cut the cake, let’s enjoy it while we can.
 
“Bull market” and “Bear market” are common financial terms. A Bull market is a 20% or greater gain from a previous stock market low. A bear market is a 20% or greater loss from a previous stock market high.
 
The table below illustrates the previous Bear market and current Bull market. Both events represent records.
 
The 2007-2009 Bear market was the worst since the end of World War II. Stock markets were down more than 50% from previous highs! Full recovery for an S&P 500 Index Fund (includes reinvested dividends) did not occur until August 9 of 2012, almost 2.5 years after hitting bottom.
 
The current bull market is the second longest in US history and still going. If it continues through August of this year, it will be the longest. The S&P 500 Index Fund illustrated below is five times higher than its value at the bottom.
 
 
How should you celebrate the Bull market’s birthday? Don’t send presents. Instead,
  • Review your portfolio. Because of the large increases in stock market returns (compared to bonds), your percentage allocation to stocks (and stock funds) may be higher than your goal. If so, reallocate some of your stock investments to bonds (and bond funds),
  • Prepare mentally. Bear markets are normal – but unpleasant – events. Historically, bear markets occurred every 3.5 years, on average. It has now been nine years since the last bear market, so another bear market is long overdue. If you know a bear market is coming, it may not seem so scary when it arrives.
  • Prepare financially. Review your current percentage allocations to stocks, bonds and bank accounts. What is your current goal and Bear market strategy? Possible strategies include:
    • Ride it out. Leave current stock and bond allocations and don’t make any changes when the Bear market occurs.
    • React to the Bear market. After it occurs, move money from the bond funds to stock funds to return to your stock/bond allocation goal.
    • Try to time the markets (not suggested by this author). Transfer from stock funds to bond funds when you think stock markets have peaked. Reinvest in stocks when you think the market is at or near the bottom.
  • Consider your work situation.
    • Still working: Review the allocation of contributions to retirement and other investment accounts.
    • Retired:
      • Do you need to withdraw funds from investments for living expenses or Required Minimum Distributions (RMDs)? Now – when the market is still doing well -- might be a good time to sell some stock investments to generate the cash.
      • Increase bank account balances s to minimize the need to sell investments when money is needed. It is possible for the bond market and stock market to decline at the same time. Bank accounts should never decrease in value.  When stock and bond markets have both declined, it is a good time to use bank account withdrawals to generate needed income.
If this sounds too complicated, consider an investment manager for your portfolio.
 
Remember, parties don’t last forever and neither do Bull markets. Past performance is no guarantee of future performance.

 

Notes:

 

This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.

 

Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice.  For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.

 

Keep in mind that:

  • Past performance is no guarantee of future performance;
  • Investments involve the risk of loss of principal and earnings;
  • ETFs, mutual funds, money market funds, etc. are not guaranteed by the US Government, the FDIC, a bank or anyone else.
  • “Average annual return” evens out variations in the actual year-to-year returns.
  • ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
  • None of the information provided is necessarily relevant to anyone’s personal situation. Circumstances differ among individuals and you should not assume that these generalizations or information apply to you.
  • Investments mentioned may not be suitable for all investors.