From time to time I am asked: Bill, what should I do with my 401(k)? This happened just the other day when I was doing a local morning news show here in San Diego.
The current bull market cycle has been going on for five years and four months and it is not going to last forever. But as of right now, the bull market is still intact.
Over the last 64 months, since the market bottom on March 9, 2009, the S&P has almost tripled. So in theory, your 401(k) should now be a 1201(k). And that does not even take into account the money that you have hopefully been allocating to your 401(k) along the way. The stock market has been the place to be over the last 5 years.
However, let’s go back to the end of 2008. The bull market was still intact back then as well and people were pretty happy with their 401(k) performance. But then the global financial crisis reared its ugly head and market conditions began to deteriorate. Just 15 months later, the market had lost more than 50% of its value. In retrospect, it was not a good time to stay in the market. What about now? Are we on the precipice of a bear market?
Index investing advocates, like Vanguard’s John Bogle, would recommend you just ride through a bear market and stay invested the entire time riding it down 50%. They would say, look what the market has done – it has tripled since then! But everyone looks at the market differently. I disagree with that line of thinking. Instead, I watch for the signs that the bull market is coming to an end. I look for signs such as valuation, technical charts, the economy, risk environment, earnings, inflation, world events, etc. As a money manager, I will do everything I can to avoid the next bear market that is looming out there somewhere.
Currently, I have a yellow flag flying on the market which means the bull market is still intact. And even though I have been fully invested throughout this current bull, but I a bit cautious right now. Again, I have been fully invested since March of 2009. Over that time, there have been a lot of threats, challenges, and turmoil, but the right thing to do over the last 64 months was to stay invested in the market.
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