It’s amazing how quickly we get comfortable.
It was only a year ago that the market was in the throes of one of the most volatile sell-offs in history. But after enjoying 11 months of a rip-roaring bull market, investors have already forgotten what that was like.
With the Nasdaq now flirting with correction territory, we’re all starting to ponder: Was the monster market move of the past year too good to be true?
Let’s see what the Twittersphere is saying.
Investors fear bear markets (yellow)
They should really fear missing out on bull markets (blue) pic.twitter.com/dSgIzhgZPr
— Brian Feroldi (@BrianFeroldi) February 25, 2021
Brian Feroldi points out that investors worry about bear markets. But FOMO (fear of missing out) should be their biggest fear. His data, compiled by First Trust, shows that the average bull market lasts 2.7 years, with stocks advancing 111.7%, whereas the typical bear market lasts less than a year and sees an average loss of 35.5%.
Naturally, the market rises over time. And that should “always” be the case given a long enough time horizon. If you believe in the durability of the American economy, then you should believe that, over time, the value of its largest and most prominent companies should increase. As Warren Buffett said recently, never bet against America!
But the key words above are: “on a long enough time horizon.”
Bear Markets of the Past
Let’s look at recent history. The stock market, led by new tech stocks, had an epic bull market in the 1990s that exploded into a bona fide bubble. That bubble burst in 2000, and the S&P 500 didn’t stay above those levels for any length of time until 2013 … fully 13 years later.
Looking at some other examples, the Dow Industrials traded sideways between 1966 and 1982 — 16 lost years. And it took the Dow 25 years to recoup its losses from the 1929 peak.
So, yes, while the market “always” rises over time… or at least it always has so far… that may not be particularly helpful to you if your portfolio was heavy in stocks in your golden years right before a major crash.
Bringing this back to today, I don’t think you should dump everything and sit on your hands. That’s a terrible strategy. It’s guaranteed to lose ground to inflation over time.
But I do have a few relevant suggestions.
What to Do Now
1. A market sell-off is a good time to rebalance your allocations. If your “normal” allocation is 60% stocks and 40% bonds, you’re probably out of balance after last year. You might have a 70/30 or 80/20 portfolio by now due to market movement. You should book some of those profits and push your portfolio back down to your target ratio regularly. But sometimes, it takes a market correction to remind you.
2. Consider moving part of your portfolio to active trading. I say this a lot, but it’s worth repeating. Buy-and-hold investing is a great strategy over time, but that doesn’t mean you should have your entire portfolio in buy-and-hold positions. There will be stretches — long stretches — where buying and holding is a recipe for total misery.
Allocating at least part of your portfolio to active strategies like those recommended by my colleague, Adam O’Dell, and I can allow you to earn outsized returns regardless of what the market is doing. Check out the details on Adam’s Millionaire Master Class here to see how you can follow our guidance today.
3. Remember the old Wall Street maxim to “sell to the sleeping point.” If you’re really concerned about your portfolio, you’re likely carrying too much risk. Lighten up a little. You don’t have to sell everything. There‘s a balance between fearing outright loss and fearing missing out on new gains. Finding that balance is your single most important job as an investor.
To safe profits,
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.