What To Remember About Investing During a Bull Market

As we continue through this bull market it’s very easy to think that we are good at investing when all the stock we buy after a couple of research searches jumps up 10% every month. It is easy to become disillusioned in times like this and forget a couple key pieces of advice handed down by those who have experienced a much longer investing timeline and invested with significantly more research and capital.

Rule #1, invest incrementally and consistently. It is easy to feel like the market is over-inflated when viewing current conditions and think “surely the stock market should have suffered negatively from the ongoing pandemic that has no end in sight.” It is extremely easy to trick ourselves into believing that we are better at timing the market because we read a few articles, compared to the hundreds of thousands of extremely educated full-time investors. When stock prices do drop (they have in the past and they will again in the future) it is important to act calmly and not just sell out of fear.

Rule #2, invest for the long run. There will always be Youtubers bragging about their biggest daytime trades, but it is important to know that these events will require significant risk, finances, and luck. They are nearly impossible to repeat in the long run and short term capital gains will be taxed at a much higher rate than long term capital gains, as shown in Table 1 below.

Rule #3, invest intelligently. Warren Buffett issued a challenge for top hedge fund managers to see who could outperform the S&P 500 in 10 years. These hedge funds were comprised of some of the smartest, hardest working financial minds of the 21st century, what makes us believe that we can do better individually sitting at our laptops reading a couple articles a week and using our new apps that have no charges for share purchases? It is easy to think we are one of the smartest people in the room when our stocks do well for a couple years, but as many realized with BitCoin, the end can certainly come quickly and will be extremely painful and humbling. While personally I do buy individual stocks that may not be included in the S&P 500, this should be viewed as a bit of diversification and I do so with a small portion of my portfolio realizing that it will probably provide the same long-term returns.

We should all invest if we have any goals to grow our wealth, but investing should be done correctly and with a plan. Consistency, a long term outlook, and intelligence are required and while following these rules we all may have a very positive outlook.