S&P's third-longest bull market ushers in stock volatility

It's now been 941 market sessions (or 1,371 days) since the S&P 500 has experienced a 10 percent correction.

As of market close on May 6, the current rally for the S&P 500 of 2,249 days is the third-longest U.S. bull market in history—surpassing a 1974–1980 run by one day. (Tweet this)

Even more amazing is that we've gone 941 market sessions (or 1,371 days) since the S&P 500 has experienced a 10 percent correction on a closing basis.

There's really only one way to process this data. Equity exposure has made winners out of everyone since 2009, but the winners in the next stage of the bull market will be those that demonstrate the most discipline.

The longest bull markets

Period: Dec. 4, 1987, to March 24, 2000
Run in index points: 223.92 to 1,527.46
Change: 582.15 percent
Duration: 4,494 days

Period: June 13, 1949, to August 2, 1956
Run in index points: 13.55 to 49.74
Change: 267.08 percent
Duration: 2,607 days

The advice for smart long-term investors doesn't really change: Consider valuation, rebalance when the opportunity arises (and stock gains demand it), and diversify your holdings.

But that's not enough. Frankly, you should know that already.

So here are four points related to the general rules of investing that will help you to improve your odds of long-term success as we head into what could be a more volatile market phase.

1. Pay attention to valuation—but don't expect it to predict the next market direction.

Valuation—the price you pay for earnings, assets minus liabilities, cash flow, etc.—is one of the best indicators of future returns. And current valuations suggest that stock prices are vulnerable to unexpected shocks, and long-term returns have an increased probability of trailing historical average returns.

Read MoreIs the party over for small-cap stocks?

Need an expert opinion here? On Wednesday, Federal Reserve Chair Janet Yellen said equity valuations "generally are quite high."

But remember, although valuation is useful in setting return expectations, it is a terrible market-timing tool. Market valuations tend to stay at relatively high or low levels for extended periods of time.

2. Volatility is not the enemy.

Stocks provide you with the best chance of outpacing inflation and reaching your goals. But the cost of higher expected returns is higher expected volatility.

The wonderful thing about return volatility is that it works in favor of long-term investors. High volatility in the short run provides rebalancing opportunities that allow you to buy low and sell high. Meanwhile, stock market returns over longer time horizons tend to be less volatile.

3. You should consider rebalancing, but don't ignore bonds just because rates are expected to rise.

If you haven't rebalanced in a while, then now is probably as good a time as any.

Read MoreInvestors bailing on U.S. equities in greater numbers

Rebalancing from stocks into bonds may be a difficult pill to swallow with the seemingly imminent tightening of U.S. monetary policy, but remember that rising interest rates are actually a good thing for long-term bond investors. Bond prices do go down as yields rise, and in a rising interest-rate environment, that's a concern front and center with investors. Keep these three principles in mind to try to see through the rising-rate hysteria when it comes to the bond market:

  • The primary purpose of bonds are to decrease the volatility of the portfolio.
  • The worst bond markets are far less severe than the worst stock markets.
  • The ability to reinvest interest and principal payments at higher yields helps offset losses and provides higher returns over time. This applies to both individual bonds and bond funds.

4. Diversification doesn't just matter over a lifetime; history suggests it might be particularly fruitful right now.

An allocation to global stocks as part of a diversified portfolio has historically provided some modest benefit to long-term investors via a small improvement in risk-adjusted returns and superior performance during down markets in the U.S.

Still not buying it?

Perhaps you ought to consider the tendency of global stocks to outperform in the five years following an annual loss. Global equities recorded a 3.64 percent loss in 2014, which history suggests could be a precursor to outperformance in the next five years.

Here's the history on that:

5. Going to cash can be crippling—and I mean psychologically.

Record highs and market milestones will create the temptation to sell stocks and go to cash. The problem with cash is both economical and psychological, and in the end I think the psychological problem is the bigger one.

From a strictly returns-based point of view, returns on cash barely keep up with inflation and can result in negative real returns after taxes. You should know that already.

But from a psychological perspective, the mind games that come with holding cash can be crippling. When stocks are going up, people frequently tell themselves that they will wait for a pullback to deploy excess cash; and when stocks fall, there is an urge to wait for them to fall further.

A lot of this stems from the human tendency to feel the pain of losses more than the joy of gains. We are our own worst enemy when our natural instincts kick in, seeking safety when we seem to be in danger. Investing requires the exact opposite: being brave during times of uncertainty.

By Peter Lazaroff, CFP, CFA at St. Louis, Missouri-based investment advisor Plancorp

@PeterLazaroff