IS IT TIME TO INVEST IN THE STOCK MARKET NOW THAT RETURNS ARE UP?

By on May 17, 2013 in Asset Allocation, Automatic Saving, Investing, Stocks | 6 comments

Follow the Investing Herd at your Own Peril

I love the questions I receive from the MBA students in the investing class I’m teaching. A recent favorite is:

Should I put all my savings into the stock market now?

stock-market-mother jones_google images

The level of the DOW Industrial average should not impact your investing decision!

Investing is a long term wealth building strategy. In spite of the day traders and active fund managers’ machinations, only about 30 percent of active fund managers beat unmanaged index funds in any one year. And those managers that beat the indexes one year, are unlikely to outperform in subsequent years.

What does this investing data mean for you?

Rarely is it a good idea to put all your money into the market at once. It doesn’t matter if the DOW is at a peak or a trough (and you won’t know for certain until later), dollar cost averaging is the best way to buy more shares when  asset prices are low and less when they are higher. Choose a set amount of cash and invest it at regular periods; monthly, or quarterly. If you have a workplace retirement account, you’re already doing that.

Do not be swayed by the enthusiastic talk on CNBC. “Investing should be like watching paint dry”, according to famed economist Paul Samuelson.

If you haven’t started investing yet, make sure you follow these “10 Steps to Take Before Investing”.

Start investing regularly and be prepared for your stock and bond investment values to fluctuate. The only time to consider putting a large chunk of cash into the markets is after a big drop in market prices, not after a big gain!

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Rick Ferri-The Bubblegum Ratio and Future Stock Returns-If you’re enthralled with investment ratios (as I am) you’ll find this humorous study of the “bubblegum ratio” thought provoking. Makes one wonder whether any ratio can predict future stock market returns.

Barb Across the Web

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Finance Carnival for Young Adults at WILDaboutFinance

Are you starting to invest now? For the seasoned investors, are you changing your strategy now that the market is up?

image credit: google images_mother jones

    6 Comments

  1. I think investing is no different than anything else! If you do not have a plan, you will have a problem. I keep my plan rather simple, a reasonable asset allocation and dollar cost averaging into the market consistently. It works very well for me.

    krantcents

    May 17, 2013

  2. Thanks so much for the mention Barb, I really appreciate it! I am like KC and keeping that long term perspective. I view investing as a marathon and not a sprint. Whether times are good or bad, I keep that in mind and fall back on my plan. If we do see a bit of a dip then I have a small amount of cash on the side to take advantage of some good prices. That said, I am doing what I have always done and think long term.

    John S @ Frugal Rules

    May 17, 2013

  3. @Kratnc and John-Delaying gratification and thinking long term are so important in building a career, losing weight, building wealth, and goal setting. It doesn’t mean you don’t enjoy today, but be mindful that it takes time to reach most life goals.

    Barb

    May 18, 2013

  4. “Investing should be like watching paint dry” Wise words indeed! I think its human nature to want instant gratification, but thinking long term and being patient is clearly the way to go.

    Michael

    May 19, 2013

  5. I am ever mindful of what warren Buffett said: when others get greedy, I get scared and when others get scared I get greedy.

    I think we’re heading into greedy season. I was very fortunate to have done very well with the “get greedy when other are scared part” so I’ve actually lightened up on our equities. the rally may last another month, it likely will last another year or two, but I doubt if the returns will be as good as those we got coming out of the cellar.

    Can’t wait for the next dip! :)

  6. Hi Michael, Like any other skills, patience and delaying gratification need to be cultivated. Practice thinking before you trade and you will be well served.
    @William, I am with you. Understanding market trends is quite helpful. That greed and fear statement from Buffett bears repeating.

    Barb

    May 21, 2013

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