How A Bull Market Is Your Enemy

With the broad US Market (e.g. Russell 2000 and Russell 3000) providing double digit returns over the last 5 years, you’ve likely had warm fuzzy feelings about the US portion of your portfolio. It can be fun to look at the gains you’ve experienced quarter by quarter, or year by year.

This can lead to feelings of contentment or optimism for your financial future.

Or, perniciously, it could lead to feelings of infallibility and an expectation that the good returns will just keep on going.

And, who knows? They may continue for a bit more, or more than a bit more.

But I can guarantee you this: A Bear Market is coming. ¬†We just don’t know when.

And it will be painful, but only temporary and marginal if you are part of the former camp.

But if you are part of the latter camp? You will experience loss more profoundly, because your expectations were that the returns would continue.

Hence the challenge of The Bull Market.

If you don’t keep your expectations in check, or if you lose sight of the long run, you may boomerang too much in the opposite direction when a Bear Market hits.

What do I mean by that?

I mean that you may conclude that there will be a long, long recovery from a Bear Market, one that perhaps can’t be supported by quantifiable data.

And this may lead to you parting from the asset allocation and investment picks your Financial Planner recommended for you.

How well has the domestic stock market performed?

The Russell 2000, which is comprised of the small cap segment of the US stock market, produced 15.33% over the past 5 years.

The Russell 3000, which is comprised of the largest 3000 stocks on the US stock market, produced 16. 36% over the past 5 years.

So while there have been more frothy years, you’ll want to check to ensure your expectations don’t get out of line with an impending Bear Market.