Wednesday, 22 August 2018
Today marks the longest bull run in US history. Since March 2009 the S&P 500 has gone 3,453 days without a 20% correction. Happy days for investors.
The index has risen by 325% during this period with tech companies such as Apple, Google, Amazon and Microsoft doing much of the heavy lifting. Factor in dividends and the figure is above 400%.
So far this year the US market is up by just over 8% boosted by Trump's decision to slash corporate tax rates from 35% to 21% last year.
Here in the UK markets have gained a modest 190% total return since the crash of 2008/09 however the FTSE has been fairly flat year to date.
How to Proceed from Here
How much longer can the markets continue to rise? I do not know is the honest answer. There will be no bell rung to indicate the top so what are the options?
1. Do nothing...9 times out of 10 this is the best solution. Ignore the media stories and focus on the long-term investing strategy.
2. Lock in some gains and move to cash. I did this with some of my investments in 2016 and came unstuck as the markets continued to make gains over the next two years whilst my cash actually lost value due to low interest rates/inflation.
This timing of the markets can therefore be risky. Also you have to make two good calls...first to cash in at the top and secondly, the decision on when to re-enter the market. After the markets have retreated 10%, will there be further falls to follow. Just as we cannot know the top, so we equally cannot know when the bottom of the market decline is reached.
3. Adjust asset allocation to reduce equities and increase bonds but again you may have some similar problems to cash in relation to timing. Also in some market conditions, bonds can be volatile and provide negative returns.
There is no getting away from the good returns offered by the markets in recent years. I have maintained my 60/40 portfolio during most of the past decade and returns have averaged around 9% p.a. after all platform and trading costs. This compares well with my cash savings which have delivered less than 2%.
After such a good run, but not knowing when the downturn will arrive, I think the best solution is to continue with my revised strategy and at the same time accept that portfolio returns may well be lower over the coming decade. Therefore it is more a matter of re-setting expectations and accepting a period of above-average returns will likely be followed by a period of below-average returns.
Feel free to comment below if you have a strategy for the end of the bull run.