Investors who have participated in the stock market for a while are likely no strangers to the roller coaster ride it can often be. The ups and downs over the past few years have shown that. It might not have been fun to experience, but it's been typical.
After a bear market went on to define much of 2022, this year has been a breath of fresh air, with all three major indexes up year to date. With the sudden change in trajectory, investors might be wondering if a new bull market is on the way.
Image source: Getty Images
There's a better question to ask
The one ultimate goal in investing is to make money. Ideally, you make enough from investing through your career to set yourself up for a financially worry-free retirement.
The best way to do this is to have patience and focus on the long term. Instead of worrying about if a new bull market is coming, you should be asking what the market will look like at least a decade or two from now.
Smartphones have made investing cheaper and way more convenient, but they have also made it too easy to get consumed with short-term noise in the stock market. Constant push notifications, social media tips (often misguided), and endless streams of real-time market data make it all too easy to overemphasize the present instead of the future.
Volatility is an inevitable part of owning stocks. The sooner investors begin to view it that way, the easier it becomes to keep a long-term point of view.
There will always be bumps along the way
Assuming you're investing for the long run, what happens along the way doesn't matter too much as long as the long-term results are there. Let's take investors in Amazon (AMZN 0.47%) as an example.
Do you think Amazon investors care more about the over 40% drop that occurred from October 2008 to November 2008, the 28% drop from December 2015 to February 2016, the 30% drop from September 2018 to December 2018, the 40% drop from November 2021 to May 2022 -- or the more than 3,500% gains they have seen since October 2008?
A safe bet is the last one.
Data by YCharts.
Investors who embrace volatility can avoid emotional reactions and prevent counterproductive moves that go against their long-term interests (such as selling shares too soon).
It's a matter of when a bull market will happen, not if
Part of volatility being inevitable is that bull (and bear) markets are also inevitable. The S&P 500, which is often used to gauge the health of the overall U.S. stock market, has experienced around 27 bull and bear markets since 1928. Here are the previous five S&P 500 bull markets:
| Trough Date | Peak Date |
|---|---|
| Aug. 12, 1982 | Aug. 25, 1987 |
| Dec. 4, 1987 | March 24, 2000 |
| Oct. 9, 2002 | Oct. 9, 2007 |
| March 9, 2009 | Feb. 19, 2020 |
| March 23, 2020 | Jan. 3, 2022 |
Data source: Standard & Poor's/Yardeni Research.
There have been just as many bear markets over that span, including the one the S&P 500 experienced in 2022.
You can't predict if and how single companies will bounce back from bear markets and down periods, but it's almost certain that major indexes and the overall stock market will. It might not be in weeks, months -- or, in some cases, years -- but it will eventually happen.
Instead of waiting and anticipating a bull market, think about how to use this time to your advantage to set yourself up for the long term. In most cases, that means investing regardless of current or anticipated stock prices. You don't want to find yourself trying to time the market; it often does more harm than good over time.
