By in Asset Allocation, Automatic Saving, Investing, Stocks

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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Barb Across the Web

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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