Capturing alpha in the financial world is all about outsmarting the benchmarks. You can achieve this by either outperforming them during a bull market or by limiting your losses when the market takes a downturn.
There are nuances to this strategy as well. For instance, you might perform just average in a booming market but remain stable during a downturn, or you might maintain steady returns during tough times only to see extraordinary gains when markets rise.
When considering the impressive double-digit returns of the S&P 500, it’s worth questioning what the future holds. Remember, a consistent 8-10% return is not always a given. If we face a bear market—which, while rare and unpredictable, is always a possibility—it’s crucial to be prepared and attentive to potential warning signs.
Typically, an S&P 500 bear market doesn’t kick off just because of high valuations, though they can certainly be a contributing factor. Generally, these market declines arise from a mix of underlying causes, such as economic slowdowns, which can significantly influence market dynamics.
