CLARKONOMICS: Is now the time for you to jump in with both feet into stocks?
Earlier today, the Dow crossed the 13,000 mark for the first time since 2008. Suddenly people are abuzz about stocks again.
If you pulled your money out at the trough of three years ago, you might be tempted to get back in the game. But why would you sell when things are down and buy when things are up? That’s exactly the opposite of what we do at retail.
Let me put it to you this way: You walk into a store and see a shirt you really want. Only it’s twice as much as it was last time you were in the store. Do you say, “I gotta have it, it’s twice as expensive?!” Of course not. The same thing goes with stocks.
The key with stocks is to buy them when they’re on sale, which really runs counter to human nature because everybody wants to bail out when the going gets tough. But you should really buy when values are depressed, not when they’re at extremely high levels as they are now.
The reality is you need to be an owner in capitalism to have long-term wealth, and that’s what stocks afford you the chance to be. But you’ve got to have a plan. Have a well diversified portfolio and stick to it. The best way to get back into stocks is by dollar cost averaging, where you put in little dribs and drabs of money each pay period or once a month through a 401(k) or Roth IRA account.
But jumping all in and all out at once? That’s a game of chance, a game of luck…and for most people the luck is all bad.