Everyone's talking about the next bull market these days. Why? Because we're getting very close to that time of market optimism and growth. The S&P 500 has climbed more than 20% from its bear market low, which is one of the key milestones that must be passed for Wall Street to declare the advent of a bull market. Once the benchmark index reaches a new all-time high, we'll officially be in that much-awaited phase.
So it's definitely time to start thinking about what this transition means for you as an investor. You might even wonder if now's the right moment to completely revamp your portfolio. After all, it's clear that certain types of stocks tend to perform better in bull markets. But that doesn't necessarily mean you should start from scratch every time the market shifts.
Adding growth stocks
First, let's start out by saying that, yes, if you have some cash to deploy as we appear to be approaching a bull market, it would be a great idea to add a couple of stocks to your portfolio that could thrive in such an environment. Growth stocks generally excel during bull markets, so you may want to turn to top players like Amazon (AMZN 3.43%) or Google parent Alphabet (GOOG 9.96%) (GOOGL 10.22%).
And, in tougher market times, you may decide to add a few "safe" stocks like big pharma companies that can count on sustained revenue regardless of the macroeconomic picture. (Patients need their medicines no matter what the market is doing, after all.)
In different market environments, you may make these small moves. But it's not a good idea to totally revamp your portfolio in an attempt to pivot for every change in the market's phases. If you do, you'll find yourself constantly chasing the market and jumping in and out of stocks before they can truly work for you and deliver significant gains. And that strategy is likely to be pretty exhausting and stressful.
Instead, it's best to construct a portfolio according to your investment style and comfort with risk, leaving some room for adjustments here and there, but largely leaving it alone. These adjustments -- like adding a few growth stocks ahead of a bull market -- can offer you a bit of a boost, but without completely changing the content of your portfolio.
Cautious and aggressive investors
Let's consider a few examples.
If you like passive income, dividend stocks should remain a key part of your portfolio regardless of the market environment. You'll appreciate that regular income -- and it will generally grow over time -- whether the market is soaring or struggling.
If you're a cautious investor, even when we appear to be heading toward a bull market, you shouldn't overload your portfolio with growth stocks or liquidate value plays like healthcare and consumer staples stocks. Instead, it's a better idea to maintain a strong position in these safer plays -- and add a few growth stocks that you think could deliver not just during a bull market but over the long haul.
If you're an aggressive investor, you're probably already positioned in some top growth stocks, and you may want to add a few more to your portfolio right now. So, your portfolio probably favors the sorts of stocks that may outperform during a bull market. But what about in a bear market? Well, in difficult market times, you still shouldn't avoid them -- in fact, downturns often offer opportunities to pick up growth stocks with significant potential at great prices and reinforce your high-growth portfolio for long-term performance.
The benefits of long-term investing
Now here's a second reason to stick with your usual strategy instead of chasing the market. You can best benefit from a particular strategy -- whether it's focused on growth stocks or safer stocks -- if you invest over the long term. By this, I mean at least five years.
Even if a particular stock performs well during a specific market period -- bull or bear -- it generally will climb even more over a longer time period. If you take a look at Alphabet's performance over a decade, you'll see periods of gains, then losses -- but over time, the stock has generally moved higher.
So it has been in Alphabet investors' best interest to hold on rather than sell after one good run. And that's true for investments broadly.
All of this means the shift to a bull market doesn't require any heavy lifting for you as an investor if your portfolio already reflects your investment style. You don't have to worry about launching a major transformation. Instead, you can look forward to the period of market enthusiasm and know that your investments have what it takes to deliver over time.
