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Happy Birthday Bull Market…
And what does this mean for your portfolio?
By: Bob DiMeo, Managing Director 
We recently celebrated the 10 year anniversary of the S&P 500 ascending from its low in March 2009 and many investors were hardly aware of the historic event. But timing is good to consider what, if anything, you should do right now to protect your portfolio. As always it’s best to begin your evaluation with a solid grasp on the current state of affairs.

We’ll start with some positives: 

• The S&P 500 has rocketed more than 300 percent since hitting its low on March 9, 2009. That’s an increase of approximately $21 trillion according to S&P Dow Jones Indices.

• Employment and investor sentiment figures have hugely improved over the past 10 years. So much so that you may have almost forgotten how nervous and uneasy you felt during the depths of the financial crisis.

• Interest rates remain low and earnings growth is strong, even if less robust than prior quarters.

On the negative front:

• To state the obvious, nothing lasts forever and this bull market is now the longest in U.S. history. Many experts don’t see a bear market or even a recession this year. However, each passing day brings us closer to the inevitable.

• Investors are acting with less caution and that could foretell trouble. Through the first two months of 2019, shares of companies with low earnings stability have outperformed those with more predictable profits1. I like the Wall Street Journal’s summation: But the rise of low-quality stocks signals investors’ exuberance in a market that teetered on verge of collapse less than three months ago.

• More than 22 percent of total world debt carries a negative yield. That’s up from 13 percent just 3 years ago as reported by Dow Jones Newswires. I won’t pretend to know what the future holds when nearly a fourth of lenders are paying borrowers (you read that correctly – paying, rather than receiving interest) to hold their money. But it’s a bit disconcerting and doesn’t at all align with what you’d expect from a solid growth environment.  

So should investors panic? Absolutely not, but here is guidance that can help you prepare for the next financial storm:

1. Acknowledge that bear markets and recessions occur and typically occur regularly. The U.S. has been in a period void of serious economic and market downturns though don’t be lulled into complacency. It’s not a question of if but when we’ll see the next bear market.

2. Adopt the 20 percent haircut approach. It’s likely that your portfolio is worth considerably more than it was during the great recession and that’s terrific. But investors who rely on their paper gains can become disappointed, or worse. Whether you’re an individual or institutional investor, it makes sense to plan and budget with the assumption that your portfolio could be worth 20 percent less at any point in time. How might that alter your plans? And what about your spending? The S&P 500 fell more than 50 percent in the last bear market. That was the worst downturn in decades so assuming you have a somewhat balanced portfolio, applying the 20 -percent haircut approach to the value of your portfolio seems like a prudent strategy.

3. Don’t sleep on diversification. As shown below, large U.S. stocks have been the darlings over the past decade though that won’t always be true. I remember back in 2009 when investors were asking if it makes sense to even own U.S. stocks. Asset classes and regions come in-and-out of favor… domestic stocks won’t always shine and technology companies won’t always lead the pack. 
No one knows when the next bear market or recession will occur but these principles should help you prepare for unavoidable downturns. As always, please feel free to contact any of the professionals at DiMeo Schneider & Associates, L.L.C. for assistance.
1Bank of America Merrill Lynch data as reported by The Wall Street Journal March 10, 2019
This report is intended for the exclusive use of clients or prospective clients of DiMeo Schneider & Associates, L.L.C. Content is privileged and confidential. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources which are believed though not guaranteed to be accurate.  Past performance does not indicate future performance. This paper does not represent a specific investment recommendation.  Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice.
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