Here we are, in the longest bull market of all time. Over recent days, the most popular headlines are celebrating this milestone as a terrific accomplishment. But, looking critically at the acclaim, I’m afraid this news could be misleading folks.
We’re not all toasting to the market’s health; I’ve heard from several people that they feel discouraged. These folks have shared with me that they aren’t sure how to put their cash to work. They fear that they’ve missed out in light of market highs, and question how best to invest their money. Should they go with silver, gold, indexed annuities, ETFs, mutual funds, individual stocks or individual bonds?
The questions don’t stop here. Many are wondering if they should convert their Roth IRA, take a lump sum or stick with the lifetime monthly payout. And, perhaps most importantly, people want to know how they can insulate themselves against the next stock market correction or recession.
All of these questions are important. And, as I’ve said so many times before, there is no one-size-fits-all answer. There is a slew of variables that make up your personal economy – your balance sheet or net worth. Indeed, while most of us share in universal saving and investing goals, we all have a unique financial fingerprint, unlike any other.
Because of the uncertainty and frustration that the recent news on the market has created in so many individuals, I think it’s best to analyze the headlines to see if we really are in the longest bull run in history.
For starters, remember that in both 2011 and 2015, we saw deep drawdowns at the individual stock level. In fact, in 2011, over 70% of stocks were down 20%. And at one point in 2015, about 63% were down 20% or more. And if we look at the Russell 2000 (a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index), this index fell almost 30% in 2011, and about 27% again in 2015.
Let’s go global. During both 2015 and 2016, Germany’s DAX, a blue chip stock market index made up of the 30 major German companies trading on the Frankfurt Stock Exchange, was down 30%. Emerging markets (EM) were down almost 40%. Ultimately, while the S&P 500 may not have reached the threshold of a 20% dip during these times, in many cases the bar was reset around the globe.
It also pays to remember the relative standing of asset classes when measuring bull markets; the S&P 500 did not decisively break out relative to bonds until late in 2016. If we were to use this measurement to pin an age on the current market run, our bull market is barely two years old.
So, back to folks’ concerns about their money, believe me, I get it. There are so many pieces to your overall financial equation. You want to be prudent in how much money you use from your portfolio annually, so you never run out of money. You want to generate more current income from your investments (rather than growth) if you are over, say, age 50. If you’re under 50, you probably want to garner more growth rather than income.
Bottom line – we don’t want to go down with the bull if this run comes to an end. From where I stand, the best way to handle this uncertainty – and all of the uncertainties of investing – is to stay rational, stay calm, and plan a prudent path forward with your financial advisor.