Will the good times end?
Investors wondering if it’s time to jump out of the bull market and wait for bearish opportunities
The bull market in U.S. stocks has been running for so long that some investors, fearful of losing the impressive gains they have already seen, are tempted to cash in while they’re still ahead.
“We’ve had a handful of clients inquire should they be thinking about taking some chips off the
table,” said Bernard Carter, managing director of investments at Hapanowicz & Associates, Downtown.
There are growing concerns that the nine-year bull market — the second longest in history — cannot go on forever. The S&P 500 index, the most commonly used benchmark for determining the state of the overall economy, has returned 335 percent from March 2009 to June 2018.
But investors who suffered steep losses before this prolonged market surge are still haunted by memories of the 2008-2009 stock market crash.
By many measures, U.S. stock valuations are high right now and people who own stocks that may have appreciated three-fold are understandably worried about when the good times will end. While there is no alarm sounding for an imminent plunge, selling high and buying lower is a compelling idea for investors.
It’s a strategy Mr. Carter has cautioned his clients against.
“To get out at a high and to get back in at a low requires making two decisions correctly, and each one of them is very, very hard to do on its own,” he said, adding that there is a penalty to be paid for being out of the market for any substantial period of time.
“If you look at where market returns come from throughout history, a lot of it is inflation,” Mr. Carter said. “It’s just the price of goods and services becoming steadily more expensive over time. That’s really about 30 percent of nominal market returns.
“Dividends are even more,” he said. “Historically, dividends are over 40 percent of what you earn from the S&P 500.
“Now if you take yourself out of the market, then you are missing out on those two pieces”
It may be cliche, but the old adage that investing is a long term proposition is still true — even nine years into a bull market, said Curt Knotick, managing partner for Accurate Solutions Group in Butler.
“Time removes risk from the markets, and smooths out all rides,” Mr. Knotick said. “A study of the market from 1980 thru 2015 shows if a consumer stayed fully invested during that entire time, they would have realized a 12.5 percent annualized return.”
If that same investor had missed out on only the 20 biggest up days, the return would have dropped to 7.2 percent.
Had they missed the 40 biggest up days, their return would have been 3.7 percent.
“Trying to time the market is a fool’s folly,” Mr. Knotick said.
Mr. Carter said for clients asking about cashing out, he suggests making smaller moves in the portfolio — maybe trimming some more expensive asset classes and adding to asset classes that are a little cheaper.
While Signature Financial Planning chief investment officer Aaron Leaman said he is sympathetic to the idea that the bull market has gone on for a long time and a pullback is probably on the horizon, he recommends investors diversify their portfolio and ride out the ups and downs of the market.
“The market always goes up and it always goes back down,” Mr. Leaman said. “It has gone up for a long time. It will go back down again.
“The most important thing to remember is that over any sufficiently long time period, the market always does go up. That’s why it is best to ride out the short term waves.”