Motley Fool's Housel: 'I Don't Know When, But a Bear Market Will Occur'

The S&P 500 index has tripled since the last bear market ended in March 2009, hitting a record high of 2,097.03 Friday.

But don't expect the party to last forever.

"When will the next rout come? I don’t know. I don’t think anyone does," Motley Fool columnist Morgan Housel writes in The Wall Street Journal.

"But make no mistake: a new bear market — that is, a 20 percent or greater market drop — will occur."

Here are three ways to prepare for the next bear, he says.

• "Realize what you are getting into." Remember, stocks occasionally crash. "Big volatility doesn’t indicate the market is broken, or that you have been cheated," Housel writes. "It is the price of admission investors must be willing to pay to achieve returns greater than is offered in less volatile assets."
• "Assess how much risk you are willing to take." The stock market's inevitable volatility may not be for you, especially if you are in or near retirement.
• "Learn from your past behavior." Cullen Roche, president of Orcam Financial Group, told Housel, "Most investors have a lower stomach for volatility than they think."

Not everyone shares Housel's caution.

A Legg Mason survey of 458 investors with investable assets of at least $200,000 found that 85 percent believe U.S. equities "offer the best opportunities over the next 12 months" among all global asset classes. That's up from 74 percent a year ago.

"Investors are looking for the U.S. equity market’s strong run to continue," Matthew Schiffman, head of marketing for Legg Mason, said in a statement. The S&P 500 has tripled since March 2009.

But all this enthusiasm may be a dangerous thing. It's "concerning," Schiffman said.

"Overconfidence can lead to a degree of complacency that could prevent investors from paying close attention to their overall financial plan and how they have allocated their assets as their own needs change," he explained.

"Investors have not changed their asset allocation since we started measuring investor sentiment three years ago, which could be another sign of complacency creep."

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