Getting Invested in a Rising Market

May 16, 2013

uparrow-personThe market’s had a long run-up and many indexes are hitting new highs. If you are still out of the market, should you dive in now?

If you’ve missed the market’s latest rally, don’t chase it. Instead, we suggest that you create a plan that helps you get back in the market over time.

When we have clients who are looking to enter the market from an all-cash position, we first focus o­n getting a meaningful portion of their account invested and then we figure out a plan to average the rest of the account back into the market. For example, we might invest 50-60% of a portfolio now, then add another 10% every time the market pulls back 5% or at the end of each calendar quarter (whichever comes first).

Subscribers to NoLoad FundX who are looking to dollar-cost average into the market should start with core Class 3 funds and ETFs. There’s no need to get involved with more speculative Class 1 and 2 funds until you are more fully invested. If you want to be more conservative, you could start with Class 4 funds, many of which are balanced funds that invest in stocks and bonds, and then shift into Class 3 in the event of a meaningful correction.

Some investors are committed to staying out of the stock market until at least a 10% correction. That’s OK but try to avoid staying entirely in cash. Instead, consider investing on a more conservative basis (perhaps using a balanced portfolio – or even investing in a bond portfolio, like our Flexible Income portfolio). If the market does correct 10%, you can then reposition your portfolio to take advantage of it. If the market doesn’t correct, at least you’ll have the opportunity to earn something more than you would if you’d stayed in cash.

If you have a balanced portfolio, you could make modest adjustments now, since the equity portion of your account has likely enjoyed fabulous returns over the trailing six-months, your account may be overweight in stocks.

Those who have missed the rally and are hoping to see stocks “sell in May” should prepare for the possibility that the rally may continue. We do believe that there will be some setbacks over the next 12-24 months, but we also acknowledge that the current trend for the market is up and we believe that stocks will be worth more in the next three to five years than they are today.

Print Friendly, PDF & Email

Previous post:

Next post: