With so many unexpected events both here and abroad, life has become unpredictable of late. Some people are worried if we will see a stock market crash this year and although nobody I know has a genuine crystal ball, we can be sure that history does repeat itself, however, often with a twist.
Sarasin’s of London, citing Robert Schiller and Bloomberg, presented the following:-
Bull markets duration on average are just less than 6 years. At present we are just approaching 9 years. The longest bull runs were in 1948 to 1961 and 1987 to 2000,
13 years! The more shorter ones were from 1906 to 1909 3 years and 1969 to 1973, 4 years.
What is the extent, how far in value to they increase?
- The average is about 250%.
- The longer ones increase by over than 800%, for example 1948 to 1961.
- While the shorter ones for example 1969 to 1973 only increased by just under 100%.
- At present we at about 260% from the base values of the last bear market.
A vital value to monitor is the price earning ratio, (PE ratio). Markets tend to get over exuberant and with relatively high PE ratios, they can then stall and crash.
So, when is the next stock market crash? The Bull Market could go on for years to come or become a bear tomorrow. How do you protect your income and assets in troubled times?
One cannot say when the next correction or crash will occur. That is why it is not wise to commit all your capital to the stock market. It is wise to have a balance between equities property bonds and cash.
So it comes down to investment allocation and having a good financial plan that you can believe in and stick to, through the “market noise”. Remember, investments are like fruit, you want to harvest them when they are sweet, in the money, not when they are sour, out of the money!
You need to secure your income for the next few years by investing some of your wealth in a low profile, income producing portfolio for the short term and the rest of your wealth in different, well-diversified, asset classes for the medium to long term.
You capital accounts may be arranged in three different levels,
Low profile,- implies low risk but also low long term returns. The capital is quite well insulated from adverse markets.
Medium profile,- implies medium risk, and you should enjoy reasonable good returns that are better than bank and inflation by a few percent.
The risk is that you are not so well insulated from adverse markets and you may be out of the money up to a short period of time should adverse market conditions occur.
High profile,- implies higher risk than medium profile. In the long term, this portfolio should give the best returns, but in the short term, it has a higher risk of being out of the money. Your investment is still invested with care and into good shares, but it is more specific, more opportunistic.
It sounds simple doesn’t it?
A good financial advisor who specialises in wealth is invaluable.
There is no “one solution” and the only constant is change.
Nick Russell
Certified Financial Planner CFP®
Please note: This article does not constitute advice