When it comes to investing, we sometimes overlook the importance of holding cash in our portfolio. In fact, it actually plays a pivotal role in your investment strategy, especially when navigating through the unpredictable terrain of bull and bear markets. Hence, understanding what we should do to our cash position during these market cycles can let us better prepare for the opportunities and risks they present.
Before moving forward, let us first define what a bull and bear market are. A bear market is defined by a decline of at least 20% from its previous peak, while a bull market starts at the lowest point following a drop of 20% or more and continues until the next high.
The chart below lists the U.S. bull and bear markets since 1942. It shows that the average bull market lasts longer (4.2 years) than the average bear market (11.1 months)....