Welcome to our Asset Protection 101 series. With exception to diversification, the industry doesn't like to talk about asset protection because it goes against conventional thinking and the way that most advisors operate. However, one size doesn't fit all clients so we will take on these topics in this series.
With the market now 4.5 years into its bull run, investors must ask themselves, “How much longer can the party last?” Looking back to the 1950s, there have been 10 bull markets with an average duration of 4 years. If you look from a glass half full perspective, 3 of the last 4 bull markets have lasted 5 or more years. The bad news is that the bulls of 1982 and 2002 lasted 5 years which we are getting very close to and no one would mistake our economy for the booming 1990s which benefited from gains in productivity, budget surpluses and high growth rates of output, employment and wages.
The S&P 500 has gained 155% off its March 2009 low so investors would be smart to protect their gains before the bear market awakes from its hibernation. Buy and hold was a painful strategy through the last two major bear markets and the next one will not treat buy and holders kindly. With short rates still at zero percent and the Fed balance sheet ballooning near $4 trillion, the Fed's options to ease monetary conditions in the next recession are very limited. Because of this, the next bear market will likely be a highly volatile and nasty one. Don't be greedy and only risk wealth that you can afford to lose. Be sure to hedge your urgent needs. While cash doesn't earn much in the short term, you will be happy to buy things back cheaper in the downturn.
Did your investment advisor protect you from the last bear market? Do you have a plan to protect your assets and will you take protective measures before the downturn? Share your thoughts in the comments section.