5 Step Guide to Getting Back in the Market

October 20, 2015

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“I sold out of the market, and now I feel like I’m missing out,” the investor told us.

He’d been investing for many years and he’d spent his career in the financial industry, so he knew that over the long term, it pays to stay invested.

Like so many investors, he still regrets that he didn’t sell in 2008 and he’s vowed never to let that happen again. So when markets were falling, he got out.

But he was wise enough to know that he needed to get back on track and get invested again. He wasn’t going to spend months dwelling on his decision to sell or trying to find the ‘right’ time to buy back in. Instead, he wanted to come up with a plan for getting back in the market.

Get Invested in 5 Steps

If you sold out of the market and are thinking about getting invested again, here’s how you can get—and stay— invested:

1. Get partially invested now.

When we’re investing a client’s account, we typically invest 30-50% of the portfolio right away. This way, the client has meaningful participation in any market gains that occur while we’re putting the rest of the account to work. This approach can also help investors who end up out of the market because they’re waiting for the ‘perfect’ time to invest.

2. Schedule when you’ll invest more of your portfolio.

We invest the rest of a client’s portfolio gradually, either on a monthly basis or when the market pulls back—whichever comes first. This allows us to buy in at lower prices and helps us capitalize on market corrections.

3. Write it out

We often pencil out exactly how we want to shift a client’s portfolio, and then we calendar these changes. Writing down how you plan to get invested will give you something to refer to later, and we’ve found that it really helps people follow through on their plan, even if markets change as they’re getting invested.

4. Focus on diversified stock funds or balanced funds

Now that you’re ready to invest, what should you buy? Too often, investors take too much risk when re-entering the market in an effort to make up for what they’ve missed by being in cash. But while more aggressive funds have the potential to earn higher returns, they’re also likely to be more volatile—and volatility is often what prompted these investors to get out of the market in the first place.

We suggest investors getting back in the market start out with diversified stock funds or even balanced funds, which tend to be less volatile. Each monthly issue of NoLoad FundX makes it easy to see which diversified or balanced funds are doing well now.

5. Plan for the Next Sell-off

There’s one more thing you should do if you sold out of the market: consider how you can ride through the next correction. Markets will go up and go down, and moving entirely in and out of the market based on sell offs can really eat into your returns over time.

Some investors, like the investor we spoke with, simply can’t stand by and do nothing during corrections. These investors may initially suppress their urge to sell, but if they reach a breaking point, they’re apt to sell out of the market entirely. A better option is to take action in small, measured ways. It’s worth selling 15% or 20% of your portfolio, for example, if it helps you avoid selling 100% later.

Making incremental moves can help you stay at least partially invested, and it can also bring some peace of mind. If markets recover quickly, at least you didn’t sell everything, and if markets continue to decline, at least your portfolio isn’t fully invested.

This post by FundX President Janet Brown originally appeared on Forbes.

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