We're entering the 11th year of the current bull market. Over the last 10 years, global stocks have risen 260% and the bond market (US Aggregate Bond Index) about 44%, giving most investors solid gains regardless of their investment strategy.

But prior to that, for 517 days after the market registered an all-time high on 9 October 2007, investors suffered through a series of market losses. By the bottom of the market — 10 years ago this week on 9 March 2009 — many investors had grown distressed and dispirited, not only by the market losses, but also by the many "false dawn" rallies along the way.

We would all like to think that we'll be able to maintain composure — and even take advantage — during bear markets. After all, they are rare opportunities to buy stocks at a steep discount. But unless we prepare our financial plans and portfolios proactively, that objective is out of reach and we need to settle for minimizing the long-term damage.

This is why we chose to write the bear market guidebook report at a time when we still think the cycle will continue for some time. It's important to cut through the unhealthy taboos that surround bear markets, and use data to illuminate a simple truth: bear markets are painful, but they are over relatively quickly and recover more quickly than many investors assume. That's great news, because it means that investors can take relatively straightforward and low-cost steps to manage bear market damage:

* Build a buffer between your cash flow needs and equity volatility. Bear markets recover within a few years=; balanced portfolios have historically recouped losses more rapidly. Separating cash flows can keep you from being forced to sell at "bear market prices".

* Next, reassess your risk level to make sure you have the right mix of stocks and bonds to meet your objectives. You can also consider hedging strategies that might allow you to sacrifice some bull market upside for bear market protection.

* Finally, manage the liability side of your balance sheet to build up borrowing capacity that might provide a "Plan B" to selling assets to meet cash flow needs.It's highly likely that we'll have another bear market at some point in the next 10 years; we may even experience one in the next five years. But market cycles come in all shapes and sizes, and they don't die of old age. While we have entered the late-cycle stage of this business cycle, that's no reason to abandon risk. This stage of the cycle has historically provided a wider range of returns, but also the highest median six-month returns for stocks.

Fig. 1: Stocks usually outperform bonds and cash in late cycle Hypothetical growth of USD 100 invested in three strategies in Sept. 1984: buy-and-hold S&P 500 and two market-timing strategies (shifting out of S&P 500 into cash or bonds if current reading is "late cycle")

Market timing is very difficult, and hazardous to your wealth, and there's a high cost to moving long-term assets speculatively from stocks to cash or bonds (see Fig. 1). So in addition to balancing risk and opportunity on a shorter time horizon, we recommend that investors take steps to prepare their financial plans and portfolios for the next bear market. We have many more options to address vulnerabilities if we act proactively. If we're prepared —and a little bit lucky—we might be able to look back on the next bear market a little more fondly.

The full version of this piece, written by Justin Waring, originated in our CIO Blog. Instructions below on how to subscribe to it.