Ask the Advisor: Investment Strategies After Two Years of a Bull Market

^{Image by Manuel González Olaechea via Wikimedia Commons}

Question: Now that the Bull market for stocks is two years old, where is the best place to invest?

This is a good question because it allows for making two important points to remember for investors:

1) Market timing strategies are often harmful

and

2) There is no such thing as an "average" Bull market.

Marking the second anniversary for a generally rising stock market is no real indication of what the future holds for investors. While history is all we have to glean some hint of how tomorrow will look (and mass media loves milestones) the prudent investor will pause to observe, shrug in amusement, and move on.

For some perspective, consider these points:

• The average Bull market duration since the 1960s is approximately four years.
• Deep recessions are usually followed by above-average Bull markets.
• Stocks, as measured by the S&P 500 Index, are up nearly 95% since the low point on March 9, 2009.

Boring is Good

The theme that should emerge from observing the past few years, in light of the extreme pessimism that preceded it, is that the old and boring investment strategies of buy-and-hold and dollar-cost averaging still matter. In other words, those investors who held on to their investments through the worst of times have been rewarded for their patience; and those who continued to add money to their investment accounts did even better.

How to invest now, therefore, for most people should be simply to continue what has worked well in the past: Invest in a diverse mix of stocks, bonds and cash in such a way that is appropriate for the particular investor's time horizon and tolerance for risk.

Don't Look for Average

"Timing the market" usually loses to "time in the market;" investing should not be exciting; and there is no reliable method of predicting the movement of stock prices. Furthermore, basing one's investment strategy upon historical averages is foolish. Averages are made up of unique and wide-ranging variables, which is to say that the current market environment is not likely to appear or feel average.

Kent Thune is a Certified Financial Planner™ and owner of an independent, "fee-only" investment management firm in Mount Pleasant, SC. Kent is also a freelance writer. To read more of his work or to find out how to contact Kent, please visit his blog at The Financial Philosopher. Have a question? Email AsktheAdvisor@savings.com.

_{Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investment} ^{advice. Under no circumstances does this information represent a recommendation to buy or sell securities.}