Personal Finance

As this bull market crosses a historic mark, here's how to protect your portfolio from the downside

Key Points
  • As the bull market turns 3,453 days old — one day older than the previous record for the longest bull market — many wonder how long the historic run can continue.
  • Here are the steps you can take to re-evaluate your portfolio now before an unexpected event that causes stocks to slide.
People run with Nunez del Cuvillo's fighting bulls during the eighth day of the San Fermin Running of the Bulls festival in Pamplona, Spain.
Gari Garaialde | Getty Images

The nine-year bull market is at a historic threshold, but don't get carried away celebrating just yet.

The bull run turns 3,453 days old Wednesday after the close of trading. That makes it the longest market rally, besting the previous record from October 1990 to March 2000.

And that has given many investors reason to cheer since the S&P 500 index climbed more than 320 percent from its low of 666 in March 2009.

Despite those gains, the effects of the financial crisis still loom. Recent research from the Federal Reserve Bank of San Francisco estimates that the crisis cost every American about $70,000 in lost lifetime income.

Investors' memories, however, seem to have recovered. A Bank of America Merrill Lynch survey of fund managers found that they are the most bullish on U.S. stocks than they have been since 2015.

Still, a downturn — or even a correction — can come at any time.

Bull market: A roller coaster ride through the past 10 years

Financial advisors offer the following tips for how you can make sure you are prepared before a big dip.

Don't try to time the market

After downturns, the market has always recovered, said David Karp, co-founder of PagnatoKarp, though some recoveries have taken longer than others.

But trying to time the market is consistently a losing proposition, he said.

"You can get it right once, and I'll call it luck," Karp said. "But getting it right twice is what you really need to do. … You've only won if you figured out when to get back in."

Have a defensive position

If you've worked hard to achieve a certain level of wealth, it is important to protect your money.

"Most people who are type A play to win," Karp said. "But once you achieve a certain position or certain place in life, it almost makes sense to play not to lose."

When investing, ask yourself if the reward is worth the risk.

"Make a decision from having been really thoughtful as opposed to just relying on the hope that the bull market continues and it continues to go up," Karp said.

Align your portfolio with your goals

Three things all investors should keep in mind when investing are their risk tolerance, time horizon and liquidity needs, according to Michael Conway, CEO of Conway Wealth Group.

"A portfolio really needs to tie back to total financial planning, overall cash needs and retirement modeling, rather than trying to time the market," Conway said.

If you keep those goals in mind, you will be less inclined to sway your portfolio with the market's ups and downs, he said.

Rebalance once a year

Take a look at your investments and gauge what has underperformed and what has outperformed the market, said certified financial planner Marguerita Cheng, CEO of Blue Ocean Global Wealth.

"If something has outperformed, it may make sense to pare back that position" and reallocate those funds to underperforming areas, Cheng said.

That helps to achieve the goal you should be shooting for: buying low and selling high.

"You don't want to rebalance too much but at least at a minimum once a year," Cheng said.

Have some cash available

Karp recommends investors have as much as 18 months of their money in cash.

That money, combined with routine interest and dividends, can make it so you know where the funds for your lifestyle for the next two to three years are coming from.

"Cash is absolutely priceless if you have it when you need it," Karp said. "And need it means in a market sell-off of 40 or 50 percent, you have the buying opportunity of a generation."

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