How to invest intelligently in a Bull market

bull-market-investingIt has been a happy new year for investors. Global stock markets have stormed into 2018 with a bang. Several “round figure” number milestones have been achieved during the first week of the year; the S&P 500 has passed 2,700 points for the first time and the Dow Jones has gone over the 25,000 mark. In Japan the Nikkei 225 has surged to 23,714.53, its highest mark in over 26 years. The UK FTSE 100 (at 7,724.22) and several European markets are now at all time highs. All this has added to the 2017 end of year “Santa Rally”.

As my investment portfolio is internationally diversified, the gains made this week have also trickled down to boost my net worth to an all time high. I have to admit that for the first time I have felt tempted to take the profits and set them aside. This would be simply irrational and against the principles of the intelligent investor; the key is to buy and hold for a long period, while paying little attention to market gyrations and the news.

It just shows how powerful human nature can be, as even the most diligent investors can be moved by emotions to make mistakes. Fortunately, I will not make any moves that change my strategy but will stick to the approach stipulated by my Investment Policy Statement (IPS).

The image above shows the latest CNN Money Fear and Greed index which shows the general mood of investors as a reaction to how the markets are currently performing. In general, people tend to buy more when prices are high and sell when prices are going down. *Tip – You can use the above index to your advantage by investing more when prices and optimism are low [red zone].

So what should investors do in such buoyant conditions. Should we start piling into the hottest stocks like the current bitcoin and cryptocurrency gold rush like craze or start selling funds to pocket the profits before the market tanks.

The best thing is to stay the course by investing regularly, preferably in low cost index tracker funds, as we can not predict where the market will go to next.

Despite various predictions by “experts”, no-one knows where the top (or bottom)of the market will be, the current bull market has been raging since March 2009.

Despite various predictions by “experts”, no-one knows where the top of the market will be, the current bull market has been raging since March 2009. Some are even incorrectly claiming that they had something to do with the stock market rally. If one had sold their holdings along the way, the loss of potential future gains would have been crystallised forever. Even worse would be the regret that the person would feel for selling at the wrong time.

2017 Progress Review

As it is the beginning of a new year, here is a brief outline of my progress towards financial independence. My most important metric, Savings Rate, has climbed to an average of 51.19%. This is important because the rate will largely smooth out any ups and downs in the market along with minimising the impact of any mistakes that an investor can make. Another metric, the expenses covered by portfolio income has reached 34.15%, meaning that over a third of my expenses can now be covered by passive income!

On top of this, in 2017 I started exploring other methods of generating income including e-commerce, blog income and digital products. Initial income has been low but very encouraging as this is income which did not exist a year ago and can be improved on with more effort.

2018 looks very promising as I will continue to optimise expenses, keep learning new skills and read more about various subjects. These incremental improvements should all add up and help achieve financial independence.

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