After reaching bear market lows a year ago, market indexes have had their ups and downs -- pushed lower by fears of interest rate hikes, then higher as certain companies reported solid earnings. Overall, though, the indexes have generally advanced as investors think ahead and aim to prepare for the next bull market.
In fact, the S&P 500 just completed its best week of 2023, rising more than 5%.
Why should we believe a bull market is on the way? Because history shows us market turmoil doesn't last forever, and bull markets always follow bear markets.
Image source: Getty Images.
So, today -- as indexes gain momentum -- is an ideal time for you to think about better market times and either start investing or continue along your current path with confidence. You can do this with any amount of money, but for our example, imagine you have $5,000 and you want that cash to multiply over time. Let's find out where to invest it.
Your comfort with risk
Before you make any decisions, first, it's important to consider your comfort with risk. If you're uncomfortable with it, you probably should avoid companies that haven't yet reached profitability, face significant challenges ahead, or are involved in some stage of recovery. You're better off with players with a strong track record of growth and that have brand strength -- and don't forget to pick up some dividend stocks, too, since they will pay you annually no matter what the market is doing.
These "safer" stocks might not climb the most in a bull market, but they generally rise steadily over time. So they have the potential to offer you solid rewards in the long term.
Coca-Cola (KO) is a great example, with strong earnings and a track record of share performance, as well as more than 50 straight years of annual dividend growth. The company's brand strength and vast array of beverages -- from Minute Maid juices to Dasani water -- mean its dominance should continue.
You also could pick Procter & Gamble (PG -0.78%), the maker of famous household brands like Bounty paper towels and Tide laundry detergent. These and other popular daily-use products have helped it grow earnings even during tough economic times.
If you're a more aggressive investor, now is the time to get in on growth stocks -- those that might be leading current market gains -- as long as their valuations still look reasonable, as well as certain players that have been left behind. These sorts of stocks often excel in bull markets, so they could be heading for a phase of strong performance.
Amazon and Apple
Buying Amazon (AMZN 3.43%) is a great idea today. The e-commerce and cloud computing company is a leader in these two high-growth markets,
Plus, Amazon's earnings are on the rise, it's investing in the hot area of artificial intelligence (AI) to improve its processes and better serve clients, and the stock is still reasonably priced even after recent gains. It trades for 52 times forward earnings estimates, which isn't ridiculous for a growth stock, and that's lower than earlier levels of more than 80.
You also might consider Apple (AAPL -0.35%). The company's iPhone revenue recently set a quarterly record, and its services business posted all-time record revenue.
The services sector is particularly interesting because its margins are high, meaning Apple can generate significant profit. Shares have advanced recently but still trade for only 27 times forward earnings estimates, which is dirt cheap considering the company's market strength and its prospects.
These are just a few examples, but many others exist. Aggressive investors also should consider growth stocks that have promising long-term outlooks but have been left behind, such as e-commerce companies Etsy and Chewy. You can pick them up for a song right now.
Cautious investors and aggressive investors
So, how should you distribute your $5,000? If you're a cautious investor, then favor safer stocks as mentioned above, and consider putting $3,000 to $4,000 in those sorts of players. You also could consider putting a portion of your money in an index tracker or a consumer staples exchange-traded fund (ETF). Then, you might choose to invest in a couple of riskier stocks with a smaller portion of your cash -- $1,000 or less, for example.
Aggressive investors might choose to invest primarily in high growth stocks right now, favoring both long-established industry leaders like Apple as well as younger growth stories like Chewy. In this case, you could put about $4,000 into these sorts of stocks, then invest the remaining $1,000 in dividend payers or other safety choices.
Now, let's consider your investment horizon. If you truly aim to maximize your gains, it's essential to invest for the long term -- at least five years. That offers companies time to grow and deliver on their promises, and you the opportunity to benefit.
It's impossible to predict whether recent index gains will lead to lasting strength or if we'll have to wait longer for the shift into a new bull market. But in either case, today is a great time to get in on cheap stocks, stocks with momentum, and shares that could rise in a bull market.
These players might climb in the near term, but more importantly, they could offer you greater rewards over time.
