Bull market can't last forever, so assess your risk

Bull market can't last forever, so assess your risk

If your retirement funds are invested in the stock market, you can't afford to ignore the signals the market is sending.

Any decisions about selling must depend on your risk tolerance, time horizon and overall financial situation. But the time to consider those things is now — at what could be the end of the longest bull market in history.


There is some debate about whether this has been the longest bull market. The period from October 1987 to March 2000 is considered by some to be the longest bull. But to accept that as fact, you must ignore a frightening slide that took place in late summer and early fall of 1990, when the Dow Jones Industrial Average slid 19.9 percent from its peak.

Because a bear market is defined as a 20 percent decline, some don't accept the decline of the 1990s as an interruption of that bullish period. But it certainly looked and felt like a bear market at the time.

Do not confuse a bear market with an economic recession, though frequently they travel together. Many bear markets have started when the economy looked brightest. So it's not surprising that the business headlines appear bullish: Unemployment is low, the economy is growing, interest rates are still relatively low and corporations are still reporting great earnings.

Bear markets tend to start when people are least worried. And they reach bottom when everyone is in panic mode.

If anyone ever called the top of a bull market more than once, he or she would be famous and wealthy. Every investment newsletter has its own rationale and indicators for calling market turns. Few have been more successful at calling tops and bottoms than James Stack, who writes the Investech Research newsletter.

In a recent issue, he advised subscribers to be wary of a decline. Stack says his proprietary "housing barometer" is calling for an imminent downturn in the economy that "could be ugly." Another proprietary indicator, the "negative leadership composite," just had a "sudden and swift downturn."

What should you do?

The worst time to think about your vulnerability to a stock market decline is when everyone else is panicking. That hasn't happened yet. But one day it will. So now is the time to sit down and review your 401(k) plan. Start analyzing your exposure to stock market risks.

Sort out your real time horizon for your retirement money. The first is the number of years until you retire. And the second is the number of years you likely will live after you retire.

When you retire, you will no longer be making regular monthly investments. So you can't take advantage of bargain prices in a market decline. But you'll also need some growth in the future to offset the effects of inflation. Stocks provide that cushion.

If retirement is a distant number, just promise yourself not to sell. Period. There has never been a 20-year period when you lost money in a diversified investment portfolio of large company American stocks, with dividends reinvested — even adjusted for inflation. So keep contributing and ride out the next bear market.

But if you're in, or near, retirement, act now to protect your nest egg. Sell down to the "sleeping point" — taking just the risk that still allows you to sleep at night. That's the Savage Truth.

Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." She responds to questions on her blog at