Historical Perspective

• Historically, the stock market has a very short, abrupt bear or down market and then an extended period of several years of increasing values until the next market cycle. The previous market bottom was in October 2002 and the market peaked almost six years later. Each up cycle will break the record values of the last one, so the next stock market recovery should exceed 1,550 for the S&P 500.
  
  Also, historically, the market rushes out of the bear market, making a significant percentage of the gains in the first six months and year. On average, the overall market will recover 25 percent of the next trough to peak in the first six months and almost half in the first year. The average first-year market gain following the last nine market bottoms is almost 40 percent.
  
  

How to Profit

• To recover and profit in the next up market, investors should develop and follow a plan. An article in USA Today recommends setting up an allocation strategy, not putting all your money in cash and looking at dividend-paying stocks. Cash deposits are earning less than 1 percent and will never allow the recovery of past market losses. Over the last 30 years, the S&P 500 has gained more than 800 percent on share prices alone but more than 2,200 percent when dividends are counted and reinvested. As the economy improves, many companies will be able to increase their dividend payouts.
  
  Look for sectors that will benefit first from the economic recovery. Financial planner and investor training instructor Bob O'Brien of Mywealth.com recommends investors look at the sectors of transportation, technology, services, commodities, energy and financial. Investors can easily allocate their stock market funds into sectors using exchange-traded funds such as the sector-select SPDRs.
  
  Past stock market results do not guarantee the future, but in the past, investors who were in the market early during a recovery made the most profits. Allocate your funds among the sectors that will benefit first from an economic recovery and allow your dividends to reinvest. Stocks have provided an average 10 percent return per year, but in the first decade of the 21st century, the market lost ground -- so the next 10 years could be very good.