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Think of a number. I’m serious… this is a matter of financial life or death.

How about 1,257?

That’s the S&P 500 equity index closing level for last year.

It’s also the closing level for the year before, 2010.

And it’s the level where the index was trading back in 1999.

In other words, the stock market went nowhere last year, and if you bought the equity index in 2011 you made no money.

As a matter of fact, it’s been going nowhere for the last 12 years.

But it certainly doesn’t feel like that. Last year’s chart of the index looks like a design of a new roller coaster, with crazy ups and downs. So does the chart of the last decade.

What’s going on? What happened to the good ol’ buy-and hold-approach?

That static number – 1,257 – holds the key to what you should do next, and exactly why you should do it.

The Bear Market of 2000 until Who Knows When

We need to understand what’s going on here.  Let’s take a huge step back and look at the big picture. Let’s go back all the way to 1810.

Throughout its history, the market has gone through long periods of just moving sideways or lower.

These are called secular bear markets. That’s exactly what we’re in right now, as you can see in the long-term chart of the S&P 500 index below.

The Current Secular Bear Market Started in 2000

Please click here to view larger image

Those multi-year bear markets happen constantly throughout history. It’s the market’s way of cleaning up the mess accumulated during the long-term boom periods.

During secular bull markets, when stocks are moving up, investors feel so good they end up making careless mistakes.

Greed takes over, and investors lose their common sense. That results in financial excesses, misallocation of capital, bubbles and fraud.

This is exactly what happened from 1980 to 2000. The excesses of those decades resulted in a huge credit bubble. Now the market is trying to clean up the mess. This will take some years.

On average, bear markets last 18 years. The economy also usually goes through at least four recessions to clean up the excesses that were built up during the good years.

We’ve been in a bear market for 11 years now, and we’ve only had two recessions so far. The shortest bear market in history lasted 16 years. All these historic data suggests the current bear market is far from over.

Adjust Your Strategy

Most investors who are approaching retirement lived through the last bull market. They got used to the “buy and hold” approach.

That’s appropriate during bull markets, but not during bear markets.

If you’re among those investors who are still buying the S&P 500 index and holding it for the long-term, you need to adjust your strategy.

What will happen to your portfolio if there’s another big crash in the next two-three years, just when you’re expecting to retire?

The “buy and hold” approach is dead – at least for the next five years.

A New Year’s Strategy to Survive and Thrive

What’s your New Year’s resolution? Get fit? Get out of debt? Quit smoking?

If you’re a “buy and hold” investor, who buys the S&P 500 index for the long-term, I have a New Year’s resolution suggestion for you…

Last year, we saw some crazy up and down moves. We can expect the same kind of market movements for the next few years.

If you’re not able to get in and out of the markets like a professional, it’s a matter of absolute financial survival that you adopt a tactical approach.

You need to protect your portfolio during the devastating declines that take place in secular bear markets.

The Forex market offers an easy way to do that.

One of my favorite ways to protect my portfolio during those downturns is to short emerging market currencies.

Those currencies tend to get crushed during market downturns, and shorting them is an easy way to profit.

During the 2008 stock market crash, for example, currencies such as the Hungarian forint, South African rand and Mexican peso lost more than 35% of their value.

You can even use those gains to offset some of the losses in your stock portfolio.

Nobody knows for sure when the next stock bull market will begin again.

But history suggests it will take at least another five years.

The next few years will likely be a “trade or die” environment – and my advice is to trade.

Best Regards,

Evaldo Albuquerque
Editor, Exotic FX Alert and Currency Capitalist

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