Now Is the Time to Start Taking Advantage of the Next Bull Market (Whenever It Happens)

An image of a bull is used to illustrate an article about bull markets. Credit: Getty Images
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It’s been a tumultuous year for the stock market. The Federal Reserve’s rate hikes have caused significant volatility across all major indexes. The S&P 500 is down 16% year-over-year, and the Dow Jones Industrial Average recently fell to a 2022 low

But over the long run, the stock market has proved to be resilient. 

The recovery could be slow and steady or miraculously quick. Economic trends show that the stock market will continue to oscillate between good times and bad times – known as bull and bear markets.

While no one can predict exactly when the stock market will turn, there’s no question we’re currently in a bear market

“Today, there’s bad news bears all around,” says Shang Saavedra, personal finance blogger at Save My Cents, LLC. But it doesn’t mean it’s a bad time to invest.  

It’s important to consider the cyclical nature of the market, especially if you want to take full advantage of the ups and downs. A bull market is a period of growth in prices and investor confidence in the financial market. We haven’t seen a sustained bull market since before the COVID-19 pandemic, which ended an 11-year run of stock market growth. However, not all bull markets are sustainable.  

We’re not in a bull market today, but it’s just a matter of time before we enter one. You don’t need to wait for one to start before investing, but make sure your financial fundamentals are in order first. Before investing during a potential economic downturn, first take a look at any high-interest debt you could pay off and make sure you have an emergency fund with three to six months of expenses. 

Here’s the lowdown on changing markets and why your investing strategy shouldn’t change.

What is a Bull Market?  

The term “bull market” references how a bull attacks – with its horns pointing upward. That upward curve mimics the economic growth of a bull market. Conversely, a bear will attack by swiping its paws downward, matching the downward trend of a bear market.  

In technical terms, a bull market is when the stock market sees an increase of 20% from its previous low point. In a bear market, the stock market sees a 20% decline in prices from its recent high. 

Such changes can happen over the course of a month, years, or anything in between. Likewise, a bull market can last for weeks, months, or even years – generating an encouraging economy for consumers and investors alike.  

Everyday consumers may pay less attention to the technical definitions of these terms. “I think for many clients, they just know that the market is doing well or it’s not doing well. For the average investor, it’s simply a sustained period of market upturn or downturn,” says Nicole Carson, CFP and lead financial planner at Brunch & Budget.  

Prior to the COVID-19 pandemic, the U.S. economy was in a sustained bull market. Younger investors might not know anything different from a market that was always going up, says Carson. 

What Causes a Bull Market?  

A bull market is a natural product of the stock market, which goes through cycles of boom and bust. The onset of a bull market kicks off a period of expansion and an eventual peak in the economy.  

After a prosperous period, businesses run out of room for growth and enter a down cycle, says Saavedra. Not all down cycles result in full-blown recessions – they are sometimes relatively brief.

Over the course of your life, you’re likely to see multiple bull markets, and they won’t always have a clear catalyst. Nor will the changing tides of bull markets ever be wholly predictable.  

However, some bull and bear markets are outside of anyone’s control,  says Saavedra. “A lot of what’s been contributing to the uncertainty in the past two years include the COVID-19 pandemic as well as the war in Ukraine.” 

The natural forces of the market are not going to be able to correct everything, especially given the state of inflation we find ourselves in today. Inflation typically hurts consumer spending and amplifies declines in the stock market. 

Bull Market vs. Bear Market 

“The average bear market lasts about 13 months, while the average bull market ranges anywhere from four to five years,” says Brett Maikowksi, CFP at THM Wealth Management. 

Bear markets bring an air of pessimism, as economic growth contracts. Public sentiment drives stock market behavior. So, the extent of a bear market can be exacerbated if investors pull their money out or cease buying altogether as stocks lose value.  

Another way to view a bear market is the stock market having a sale.

“It can be extremely discouraging when you put in a lot of money and your value goes down immediately,” says Saavedra. “This is also the kind of opportunity that people wait for because you can get all this stuff on discount. And yes, it is going to be humpy for a bit, but the bear market will recover, as history has proven.”  

When the market corrects and begins to expand once again, investors will eventually find themselves in yet another bull market.  

Investing Advice for Changing Markets

The most predictable aspect of the stock market is its unpredictability. This can make investing feel like a gamble. But if you bet on the market changing, you won’t be shocked by every upswing and downswing. 

Like an exercise routine, make investing a healthy habit. By investing regularly, you can take advantage of market swings, rather than the other way around. Dollar cost averaging is a great way to get into the practice of regularly investing a fixed amount, regardless of the share price. 

“The biggest thing, especially for younger investors, is committing to regular investments on a monthly or quarterly basis – even if you’re starting with small amounts. By continually investing in the market at different prices, it can help smooth out some of the volatility and ups and downs along the way,” says Maikowksi. 

Broad, low-cost index funds, which hold a portfolio of stocks, are a great option for investors of all experience-levels looking to mitigate unnecessary risk factors.

Pro Tip

Investing is a great way to build long-term wealth, but it will always involve some risk. Determine your risk tolerance before entering the market.

Investing in a bull market

A bull market “feels really easy to get started, you’ll put money in and you’re going to see that growth very quickly,” says Saavedra. Investing in a bull market doesn’t require a lot of patience. What it does take, in order to see your assets increase in value, is discipline. At the end of the day, the stock market is a long-term investment, while a bull market is a moment in time. 

“I think it’s easy to get caught up in a bull market when you see prices rising. You think they’re going to continue to go up and there can be a real fear of missing out,” says Maikowski. “We recommend a disciplined approach. Stick to your plan, stick to your strategy and just continue to invest without going overboard on trying to chase those gains.” 

In a bull market, people will tell you to buy this, that, and the other thing, “but you must make sure that you have a clear understanding of what your specific goals are as well as your risk tolerance,” Carson says. “Don’t allocate your assets based on someone else’s goals.”

A bull market is not going to last forever, and neither will a bear market.  

Investing in a bear market

Even though bear markets tend to be shorter than bull markets, they can be incredibly painful, not to mention a real test of your patience. 

Remember that markets are cyclical, and they will rebound, so it’s crucial to stay the course. “If you sell out [during a break market], not only are you selling out at a lower amount, but when you decide to re-enter the market, you’re going to have missed out on all that growth,” says Carson. 

It can be difficult to know when the market is at its low point. This is why sticking to a regular investment schedule can minimize the guesswork and maximize your discipline as an investor. 

How to invest regardless of the market 

A bull market isn’t a green light to invest aggressively. Neither is a bear market a sign to pump the brakes on your investments. Smart investing is a bit like cruise control. Steady and consistent investing, regardless of your experience or risk-tolerance, is key to navigating the inevitable bumps in the road. 

Experts across the board strongly recommend you have an adequate emergency fund set aside before you begin investing. This fund should be able to cover three to six months of expenses in case of a medical emergency or an unexpected layoff. You don’t want to have to pull money out of your investments in order to make ends meet.  

Another rule of thumb, Saavedra says, is to not to invest money you’ll need in the short term. “In the first five years, the volatility is going to be very real,” she says. “After five years, the likelihood that your investment will grow in value is more than 96%, a fantastic statistic.” 

Investing is going to be emotional, whether it’s exciting, discouraging, or downright terrifying. In fact, investor confidence, or lack thereof, has a major impact on the longevity of bull and bear markets. There isn’t an investor that hasn’t felt the pain of a bear market or the thrill of a bull market. But the ones who see the best returns are those who focus on their long-term horizon. 

“Invest on fundamentals, not hype and excitement. As easily as those gains come, they can just as quickly go,” says Maikowski.