Bull Market Rages, But It Can’t Last Forever

Posted by Richard on October 16, 2018

The U.S. stock market is on fire, in the midst of the longest bull run in history.

Stock investors and holders of 401Ks have been looking at double-digit gains during the last year.

Can this monetary Shangri-La last forever? Heck, no. What goes up will come down.

For pessimists, realists or those who are nearing retirement, there are ways to balance their portfolios to help them lock in their profits.

Traditionally, government Treasuries represent the most stable bonds. These conservative investments rose 1.4 percent and 5.2 percent in price, respectively, during the 2008 recession while large market cap companies fell by 37.7 percent. The downside to holding money in these markets is that during times of positive economic growth they will be some of the worst performers overall, offering minimal gains, according to Forbes.

For retirees, about 30 to 60 percent of a portfolio should be in stocks. Most experts recommend a mix of stocks, bonds and cash. Cash reserves should equal one to two years’ living expenses. Determine the percentage that you can put in stocks by your risk aversion. For example, a 20 percent drop in the Dow would mean that their $150,000 stock market investment would lose $30,000, according to USA Today. If this risk is too great, then retirees should protect at least 20 percent of their investments with bonds.

Retirees can also consider annuities to generate a guaranteed income, but remember annuities tie up money in return for stability.

Young people on the other hand, with 20 or 30 years before retirement can keep their 401ks and other investments neatly tucked in the stock market. Though there will be bear markets, those typically don’t last any longer than 14 months so young people have the time to wait.

Conservative mutual funds with a mix of bonds can be a good choice to avoid stock market losses.

The consumer staples sector has been the best performing asset in the late stages of a bull market. They also hold their value better than other areas during recessions because people tend to still buy the same amounts of things like toilet paper and toothpaste regardless of the broader market’s problems. During the dot-com crash, the sector managed a 1.2 percent gain despite a 49 percent crash in the S&P 500.