The Beginner’s Guide to Investing

Here's what 'bull market' means and how you know if you're in one

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If you don't know exactly what a "bull market" is, you're in good company.

According to results from a financial fitness quiz conducted by American Century Investments and Investopedia, more than half of the 2,260 respondents could not define the financial term.

CNBC spoke with Nick Holeman, certified financial planner at Betterment, who explained everything you need to know about a bull market.

What is a bull market?

"A bull market is any time period where stocks are going up in value," says Holeman. A "bear market" is the opposite, when stock prices are falling.

"That's pretty generic," he continues, "so there are some rules of thumb that most stock market analysts and economists use to better hone in on what exactly a bull market and a bear market are.

"The yardstick is: A bull market is a market period where stocks have increased at least 20 percent. A bear market is if stocks have decreased at least 20 percent."

Bill Gates follows this part of Warren Buffett’s investing philosophy
Bill Gates follows this part of Warren Buffett’s investing philosophy

Can a bull market be predicted?

"Definitely not," Holeman tells CNBC Make It.

While you can look at data on how long the typical bull market lasts and the percentage growth that happens in each one, ultimately, "each one is different," he continues. "They are caused for numerous reasons, whether it's housing or wars or technological booms, and there's really no way to predict them."

How long does a bull market last?

It depends on which time period you're looking at, Holeman says, but "the average bull market lasts somewhere between five to nine years."

We're currently in the middle of the second-longest bull market ever. It's been nearly nine years since the prior bear market ended in March 2009.

Ultimately, "they can range," says Holeman. "They can be as long as 13 or 14 [years], and as short as two or three."

Warren Buffett's secret to investing lays in the game of baseball
Warren Buffett's secret to investing lays in the game of baseball

Should you be investing differently during a bull market?

"No. It goes back to the fact that they are very hard to predict," Holeman says. "So rather than trying to time the market in general, you should stick with your long term strategy."

Think about it this way: The average person lives to about age 85. If you start investing at 25, that means your lifespan as an investor will be about 60 years.

"Depending on whether you use five years or nine years for how long a bull market lasts, the average person will experience about six-to-10 bull markets throughout their investing life," says Holeman. "They're going to happen. They're a part of everyday investing. Trying to alter your strategy or predict when one will start or end is going to end up causing you more headache and not really going to do anything great for you."

In short: Don't get overly excited when the market looks healthy, and remember that bad things aren't always obvious when times are good. As investing legend Warren Buffett likes to say: "You only find out who is swimming naked when the tide goes out."

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