The stock market has had an amazing run lately, but too much money is still on the sidelines waiting. According to a recent survey conducted by Kiplinger’s magazine, almost half of all Americans do not even know that we have had a fantastic run in the Dow Jones Industrial Average and the S&P 500 index for the past 15 months.
They thought that the stock market had been down in 2012 instead of realizing it was up 13%. And, still others know about the stock market’s great and are still sitting on the sidelines waiting to get in the market or think that they have missed the boat.
Many investors are still in a state of shell shock after getting hit hard by the Great Recession of 2007-2011. A lot of people saw their savings and retirement funds drop to half of their value. And, of course, thousands were devastated in the housing bubble and have yet to get out from underwater on their home values. Click here to learn more about Motif Investing
The S&P 500 index, the broad measure of the stock market and American economy, rose an average of 14% annually since the recession in 2008. So, the question remains: is it too late?
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Did investors who have been sitting on the sidelines miss the boat in the market? No! If you are a long-term investor, now is still a great time to invest in stocks and mutual funds. You’ve got to get off the sidelines and start investing in the stock market again.
Here are a few ideas on how you can get back up on the horse, shake off the recent recession, and start investing again.
Use Dollar Cost Averaging To Get Back In
Dollar cost averaging is a great way to get back on the horse and start investing in the stock market again. Andrew Wang, Senior Vice President and Portfolio Manager at Runnymede Capital Management suggests dollar cost averaging due to its psychological effects on investors.
“For many people, the idea of dollar cost averaging, i.e. start investing a set amount at various intervals, can be more palatable than investing a lump sum all at once.
While this approach is most effective in a volatile market environment marked by dips and rallies but one in which the major stock market averages remain flat, there is a psychological benefit because a reluctant investor can dip his/her toe in gradually rather than dive in head first,” he said.
Set Goals For Yourself And Your Investments
Mark Mersman, a financial advisor and nationally syndicated radio host mentioned setting goals as a way to get back on the horse. “Ask yourself an important question – ‘Can you accomplish your goals if you are on the sidelines?’
Many investors may find that they don’t need to take as much risk as they may think in order to accomplish their goals.. If they determine that their goals can be accomplished with less risk, the pressure to enter the market should be lessened.”
Understand The Risks Of Being Out Of The Market
Elliot B. Herman, CFP(r), CPA of PRW Wealth Management recommends that investors understand the dangers of being out of the market as well as those that come from being in the market.
“View the risks of being out of the market as important as those of being in it. It’s just a different kind of risk that lessens over longer time frames,” he said.
Start Investing On A Set Schedule To Get Back In
Similar to dollar cost averaging, you can invest on a schedule to get back into the market. For example, instead ofinvesting in the stock market monthly like with many dollar cost averaging plans, you can invest certain amounts of money quarterly until you get your feet back under you in the market.
Elle Kaplan, CEO of Lexion Capital Management, recommended this route. “I never endorse market timing. If you plan to be in the market for the long term (at least the next three to five years), then simply set aside a certain amount per quarter, give yourself a schedule, and start investing it according to the timing you decide on in advance.”
Know The Time Horizon Of Your Investments
Gary Shor from AEPG Wealth Strategies says that investors need to understand their time horizon that you will use the funds that you are saving. Are you saving for retirement in twenty years from now? Or, are you saving for your high school senior’s college tuition?
“If you are many years from retirement or when you need the funds, then it is ok to jump in [to the stock market]. It’s not where the market is today or tomorrow that counts. It where it will be in years to come,” he says.
Index Funds And ETFs Give You Flexibility
Buying index funds or ETFs (exchange traded funds) can help investors in a rising market like the one we see now. Investors feel that these types of investments provide them with flexibility to make asset allocation changes quickly and easily should the market begin to move again due to factors like Federal Reserve policy and other macro events.
Don’t Try And Time The Market
Most of the financial planners and portfolio managers that I’ve talked to about getting back in the market have been unanimous on one point. They all recommend staying away from timing the stock market. It’s a fool’s errand.
“Nobody can successfully time the stock market consistently. So the best way for investors to get back in the market is to find 4 or 5 no-load mutual funds that are diversified across large cap, small cap, and international. And, then set up a monthly automatic deposit into each at whatever level you can afford, say $50 per month for each. And then sit back and work hard at your real job and spend more time with your family. Only check your fund accounts once a year,” said Tom Kerr, Portfolio Manager at the Rocky Peak Small Cap Value Fund.
Don’t Rush To Jump Back In
If you think that you have missed the stock market’s move, it may be prudent to take your return to it a little slower than you probably want to. It is hard when you hear in the news about how well the market it doing and you’re still sitting on the sideline.
Jim Wright, Chief Investment Officer with Harvest Financial Partners near Philadelphia advises slowing down just a little bit. For him, it is all about buying on the weakness that you may see in the market.
“If you missed the move, there is no need to race back into the market…If you want some exposure, average your way back in. If you use mutual funds, buy a little position immediately and dollar cost average into the fund or funds over the next 12 months.
If you use ETFs, buy a little now, then put limit orders in to the fund or funds 3-5% lower, then 3-5% below that, etc. By buying some now, you have exposure if the market keeps going up, but with the limit orders you can pick up stock market exposure on dips.”
Just Get Out There Already!
And, finally, just get in there and invest! Just go do it! Stop waiting. Stop sitting on the sideline. Start investing again! Get in there!
What about you? Are you still standing on the sidelines waiting to start investing again? What are you waiting for? I’d love to hear your thoughts in the comment section below!