How to Adjust Your Portfolio for a Bear or Bull Market

A bull market is a period of rising stock prices that mean significant profits for investors who own stocks – we’ve been in a bull market since March 9, 2009, the longest since World War II, as CNBC reports, with the market rising more than 300 percent since its low nine years ago. And some economists say it could go on for several more years, while others say it’s likely to end sooner, with a recession coming in the next two years.

Imagine a bull market in real estate, with prices going up, people selling and buying lots of new homes in Colorado Springs and other areas around the country, but toward the end of the bull market, there are more sellers than buyers as people often think they can’t afford to buy a house as real estate prices are too high. The central bank likely raises interest rates toward the end of the economic expansion, which also means mortgage payments become more expensive.

A bear market, the opposite of a bull market, is when the S&P 500 suffers a 20 percent drop from a previous high. You’ll notice more pessimistic headlines in the business section of the newspaper, with investors feeling less confidence about the near future, and stock prices begin to fall or drift sideways.

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What to Do in a Bull Market

During a bull market, investors can feel more confident about taking greater risks, purchasing stocks that may have more uncertain profiles. Sectors like nonessential goods and services known as consumer discretionary, commodities producers and energy, tend to do significantly better in this type of economy. It’s also a time to think about riskier emerging markets, or developing countries, referring to nations that are investing in more productive capacity, moving away from their traditional economies that have relied on exporting raw materials and agriculture.

Adjusting During the Bull Market Finale for a Bear Market

During the finale of a bull market, before it becomes a bear market, the best thing you can do for your portfolio is to make sure that it can endure what’s coming. While there may be quite a bit more time, it’s better to be the first one out the door, getting out of the market quickly before things really head south. That means adding lower risk investments like short-term Treasury bonds to lessen the chances of the market erasing gains made since becoming a “bull” in early 2009. Bonds are less likely to lose money than stocks and can help reduce losses to your portfolio during stock market declines. They also pay interest on a regular basis, helping to generate a steady, predictable stream of income from savings during more challenging times.

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