That said, recent bumpiness in stocks suggests that the end of the long bull market may come sooner rather than later.
While trying to time the market is an impossible task, here are some smart moves you can make with your money right now to protect yourself from the next market downturn while still putting yourself in a position to reach all your financial goals.
1. Get in the Habit of Investing Regularly.
Many people make the mistake of thinking that they don't have enough money to invest regularly. Instead, they buy stocks only occasionally when they have big windfalls like a tax refund.
But with the automatic investment options that many employer retirement plans and brokerage companies offer, you can put even modest amounts of savings to work for you on a regular basis. That will make you more likely to keep investing even if the market drops, allowing you to take better advantage of bargain opportunities that inevitably arise during downturns.
If you're like most people, you've heard plenty of tales of how a single stock made millionaires out of all of its investors. But for every anecdote like that, there are 100 untold horror stories of investors who lost everything gambling on one company.
The secret to successful investing isn't finding a single perfect stock, but rather putting together a diverse portfolio of promising investments and building it up over time. Owning many different stocks keeps you from losing your shirt on a single piece of bad news, and boosts your chances for earning solid returns.
When the stock market rises sharply, your overall portfolio mix gets out of balance, overemphasizing stocks and giving you too little in other investments like bonds and cash. Back in 2008, many people were surprised at how big their losses were, simply because they hadn't realized how much their stock positions had grown during the bull market from 2003 to 2007.
Rebalancing involves selling off some of your winning stock investments to raise cash or invest in bonds or other types of investment assets. By targeting specific percentages for stocks, bonds, and other investments, it'll be easier for you to keep a well-balanced portfolio.
4. Shore Up Your Emergency Cash Supply.
During bull markets, it's tempting to put all your cash to work in the market. Moreover, savings accounts are paying next to nothing in interest right now, making having a cash stash seem like a waste.
Yet as an insurance policy, it's still smart to have enough emergency cash set aside to cover three to six months' worth of living expenses. That way, if you're laid off or suffer a financial emergency in the future, you won't have to worry about whether it's a good time to sell your investments.
5. Look For Problem Stocks in Your Portfolio.
Bull markets tend to pull most stocks up with the overall market. When a stock is rising, you're less apt to notice troubling signs that could foretell declines down the road.
6. Target Some Bargains.
Long rallies make many promising stocks too expensive to buy. Even the best businesses don't make good investments if you have to overpay for their shares.
But making a list of promising stocks that you might be interested in adding to your portfolio on a pullback will help you prepare for the bargains that inevitably pop up during a market downturn. You may not get every stock on your shopping list at the price you want, but having a plan in place will make you more willing to pull the trigger even if falling markets make you less certain than you are now.
7. Be Tax-Savvy.
Bull markets really show the value of smart tax planning. Many investors are reluctant to sell winning investments because of the taxes they'll have to pay, and that reflects the mistakes they made early on in not using tax-favored accounts to invest.
Using an IRA or 401(k) can be the smartest way to invest for long-term goals like retirement. Between breaks that can reduce your current tax liability and the promise of tax-deferred or even tax-free growth in the future, tax-favored accounts like IRAs and 401(k)s give you big advantages over regular investment accounts.
Just because stocks have been choppy lately doesn't mean they won't go to new record highs in the future. But by taking a critical look at your investments and making smart moves with your money now, you'll be prepared for whatever happens next.