Investing Now for the Rest of the Bull Market

Let’s say you just sold your practice, or your share of equity in a group practice, and received a large amount of cash. You’d like to invest this money in the markets so it can grow during your retirement.

But, fearing that the long bull market may be near its end, you’re understandably reluctant to make this move. This fear is heightened by prevailing market noise that includes doom-saying commentary from talking heads predicting the death of the bull market that’s been running since early 2009.

Outright predictions of bear markets aren’t something that many analysts are inclined to attempt, but economists try to gauge the likelihood of recessions. At mid-year, some economists had put the chances of recession fairly high—despite the various contrary factors, including high employment and high consumer confidence. Nothing sustains economic growth like people earning and spending money.

By late September, this recession talk had subsided somewhat and remains muted today: You no longer heard newscasters talking about it every day, but the fear of getting caught short by a bear market has remained widespread. Despite continued stock market gains in 2019 and historically low bond yields, inflows into bonds this year have been historically brisk.

Many investors fear that the long-running bull will soon morph into a sleepy bear simply because it has been running so long. Yet Mark Fiedler, CFA, of Autus Asset Management cites an applicable adage: “Economic cycles never die from old age.” Rather, he says, it takes some kind of stimulus—such as an asset bubble, a geopolitical shock, a misstep in monetary policy or some other event.

When this type of stimulus occurs, depressing the market, there’s no predicting its arrival or duration, so trying to time investments accordingly (known as timing the market) is never prudent. A better course is to rely on perennial portfolio diversification in an array of quality investments purchased at reasonable prices.

Many people assume that after a decade, the bull market must be close to a top. Yet, as of early October, after the end of the third quarter of 2019, comparisons with past market peaks showed reasons to doubt this assumption. Valuations weren’t stretched, and inflows into stock funds weren’t huge. Also, “earnings expectations have stabilized lower growth levels,” says Kipp Goll, CFA, also with Autus. And while interest rates have risen in periods that preceded past market tops, rates have actually declined this year.

Moreover, there are some good reasons to believe that the stock market—or, at least, some sectors of it—have considerable potential for growth over the next several years. Prominent among these factors is the potential of various tech fields to drive investment in what is now arguably emerging as the fourth industrial revolution. True to historical patterns, this revolution will be driven by technology: nanotechnology, quantum computing, 5G telecommunications, blockchain, robotics, and artificial intelligence.

Though many investors may want to position their portfolios to take advantage of this, it’s wise to take a measured approach to equity portfolio construction, within your particular risk tolerance and according to your personal goals.

So, amid the current fears about the assumed end of the bull market, how do you construct a portfolio that will take advantage of growth opportunities and yet still weather an eventual slowdown or bear market? The key is to position for whatever happens.

Here are some points to consider when investing a large amount of new cash in current markets:

• Invest slowly over several months, gradually building up levels to target allocations. This is a sound approach in the current market scenario of historically high share prices and low-interest rates.
• Maintain a focus on quality companies with sound financial statements, and on valuations that allow for growth.
• If you’re skittish about the length of the bull market, set near-term stock exposure to levels a bit lower than eventual long-term levels. This allows time to develop a comfort level and affords an opportunity to benefit from continued rises but also to add shares at lower prices if stocks decline.
• Avoid over-concentrations, which increase risk. A portfolio should have enough diversification to withstand declines like the tech debacle of the late 1990s, the financial-stock drop of 2006 or the energy collapse of 2014. “The greed of the moment had driven investors into unhealthy levels of these sectors,” says Goll. “Healthy diversification starts with a blended strategic approach that employs domestic stocks, international stocks, investment-grade fixed income (bonds), other fixed income and strategic levels of cash.”

By putting your sale proceeds in a well-constructed portfolio, you can position for remaining growth while still protecting assets from downturns.

David Robinson, a Certified Financial Planner, is founder/CEO of RTS Private Wealth Management, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.