Ask a Fool: Should I Stop Putting Money in the Stock Market Until After a Correction?

Q: The current bull market recently became the longest in history, and the S&P 500 and Nasdaq are at all-time highs. Should I stop putting new money into the stock market?

It's true the present bull market is the longest in history. Furthermore, by several indicators, the market is expensive in a historical context. For example, the so-called "Buffett indicator," which is an expression of total stock market capitalization as a percentage of GDP, has never been higher.

Even so, this doesn't mean you should stop investing. For one thing, it's impossible to time the top of the market. Just because this bull market is the longest in history doesn't mean it won't keep climbing. It's entirely possible that the S&P 500 could rise by another 10%, 20%, or even more before a correction comes.

Having said that, now may be a good time to make some defensive investments. For example, stocks with strong track records of dividend growth tend to do better than their non-dividend-paying counterparts during downturns. Real estate investment trusts (REITs), utility stocks, and consumer staples are also generally defensive types of investments.

With stocks like these, you'll be taking steps to limit your downside risk if the market takes a turn for the worse, but you'll also be putting your money to work and setting yourself up for income and profit if the market continues to make new highs.

As a final thought, it's never a bad time to invest from a long-term perspective. Even if you had invested in the S&P 500 at its 2007 peak before the financial crisis hit, you'd be sitting on a 140% total return right now.

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