It’s been just under 2 years since stocks hit their abysmal recession lows. Since then, the market is up almost 90 percent. Think about that number; it’s actually a stunning gain in the market. In fact, it’s the biggest rally in a single period of time since 1955, the year of my birth.
So now that things are looking rosy again, you have all these “experts” in the media saying now is the time to get back in the market. My take? The time to get in was to never get out in the first place. Individual investors conspire against themselves when they react too severely to market volatility.
At the peak of the downside, I took panicked call after call from people who thought the only answer to the crisis was to sell all their holdings and never go near stocks again. As I spoke to those callers, I was doing everything I could to talk about horizons. How long is it before you’ll need money? If you’re younger and you take the long view, the ups and downs of the market are irrelevant to you.
When people called about the stock market in 2007, 2008 and early 2009, I consistently said the same thing: I have not changed anything I’m doing. I’m well diversified and I put money in every month, paycheck by paycheck. That’s called dollar cost averaging. The benefit of this approach is that if the market goes in the toilet, I’m buying more shares with my money on deep discount. And if the market does well, that means I’m buying fewer shares when they’re probably overvalued anyway.
So now that the market is up almost 90%, I believe many experts are leading people in the wrong direction when they tell them to get back in the game with everything they’ve got. If you want to have a strategy moving forward using dollar cost averaging, fine. But just to take everything you’ve got on the sidelines and dump it in as one lump sum? That’s not my advice.
If you are ready to get back in — hopefully you never left in the first place — see my investment guide below that will lead you through the process. But if you already have a good strategy and your retirement horizon is far enough away, you stay in the game. It’s that simple.