Economy, Personal Finance, Retirement, Stock Market, Wealth Management

Enjoy the Big Market Rally, Prepare for the Big Retreat!

Investors may be lulled into a false sense of security by this market.

Will the current bull market run for another year? How about another two or three years? Some investors will confidently say “yes” to both questions.

Optimism abounds on Wall Street: the major indices climb more than they retreat, and they have attained new peaks.

On average, the S&P 500 has gained over 16% a year for the past twelve years.

A stock market correction is coming at some point. A bear market could even emerge. Is your investment portfolio ready for either kind of event?

It may not be. Your portfolio could be overweighted in stocks and stock mutual funds – that is, a higher percentage of your invested assets may be held in equities than what your investment strategy outlines.

As your stock market exposure grows greater and greater, the less diversified your portfolio becomes, and the more stock market risk you assume.

You know diversification is important, especially when one investment sector that has done well for you suddenly turns sideways or plummets. When a bull market becomes as celebratory as this one, that lesson risks being lost.

How do bear markets begin?

They seldom arrive abruptly, but some telltale signs may hint that one is ahead. Notable declines or disappointments in corporate profits and quickly rising interest rates are but two potential indicators.

The Federal Reserve has been signaling a raising of interest rates coming in 2022. This will increase borrowing costs not only for households but also for big businesses.

A pervasive bullishness – irrational exuberance, by some definitions – helps to send the CBOE VIX down to unusual lows and can be seen as another indicator of a bear market or stock correction.

How long could the next bear market last?

It is impossible to say, but we do know that the longest bear market on record lasted 929 days (calendar days, not trading days). That was the 2000-02 bear.

A typical bear market lasts 9-14 months. Enjoy this record-setting Wall Street run but be pragmatic.

Equities do have bad years, and bears do come out of hibernation from time to time. Patience and adequate diversification may make a downturn more tolerable for you.

You certainly do not want the value of your portfolio to fall drastically in the years preceding your retirement. If this happens, you will have a narrow window of time to try and recoup that loss.

Remember, the market does not always go up. It may be time to lock in these gains or re-balance your portfolio.

Be careful listening to the media.

So while 16% gains sound great, way over 500% gains without a significant correction; the average annual return since the 2000 bear market has been only 4.57% (without dividends). Adjust for inflation and that return goes down to 2.42%.

Minus out taxes, management fees, brokers fees, and expenses and it seems like those that have been in the market since 2000 are still losing money.

The coming correction is right around the corner. Be Proactive, Not Reactive. ANNUVA clients didn’t lose a dime in 2000 or 2008 or anywhere in between.

How low can it go? That’s anyone’s guess but this guy thinks it will be the Worst Stock Market Crash Ever… and that would be pretty bad.

What’s that old saying? “it’s all fun and games till someone gets hurt.”

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