Investing in an Aging Bull Market

Writing about the longest bull market in history, we noted yesterday that bull markets don’t last forever.

Some, such as LPL Financial, believe the bull market still has years to go. Others are cautioning that the end is near.

As an investor, what should you do?

Diversification is the place to begin. Make certain your portfolio includes not only stocks and bonds, but alternatives, such as precious metals and real estate. And your stock holdings should include not just U.S. equities, but some international stock.

Journalists and investments managers have been writing for years about how to invest in an aging bull market, yet the bull is still running, so it’s probably not a good idea to sell off all of your stock holdings tomorrow.

Dealing With an Old Bull

USA Today suggested in March that, “It is not uncommon for just a handful of stocks to account for the bulk of the market’s rise late in a bull, a phenomenon dubbed a ‘narrowing’ of the market.”

Amazon, Microsoft, Apple, Netflix and Alphabet were responsible for nearly half of the year’s market gains in March, when the article was written, and that’s still the case.

Investing in stocks of other companies with strong profits — in addition to the five listed above — can also help protect investors from the volatility spikes that are common in the later stages of a bull market.

Just as the bull market is the longest ever, the economic expansion, which is now 111 months old, will become the longest ever if it continues to the beginning of next summer. While the economy has been growing at its fastest pace since before the Great Recession, you may consider holding some defensive stocks in anticipation of the next recession.

Defensive stocks are stocks of companies that make products for everyday use, such as soap and toothpaste. Demand for them is inelastic; consumers need these products and will purchase them even during a recession.

As we’ve previously noted, gold is often effective as a hedge during market anxiety, but it also typically performs best when the dollar is weak. The dollar has been trending upward since April and the price of gold has been trending downward for most of 2018.

Consider doing some additional research, but avoid rash action. One article we found recommended positioning for a weak dollar and investing in emerging market stocks; either action would have been costly this year.

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