Should You Invest In A Rising Market?

iStock_000005170009XSmallEver since we stumbled past the Fiscal Cliff and the budget crisis, the stock market has been rising like a hot air balloon in an updraft (at least as of the time this post was written at the end of March 2013).

If you have money to invest, should you put it to work when stock prices are rising every day, or should you wait until the market goes down?

I’m not financial advisor or planner or trader or fund manager, but since I have money to invest, I wanted some answers to this question for my own purposes! I’d rather buy stocks at a lower price and sell them at a higher one if I can. It’s hard for me, emotionally to avoid trying to time the market.

We individual investors have all become market skittish since the recent huge recession and economic downturn. Should we trust that the market is going to behave itself and not come crashing down again? Is the economy really recovering or will our jobs (assuming we have one) once again disappear?

I’ve heard predictions that the DOW industrial average will hit 30,000 in the next decade. In fact buy-and-hold investor Ron Baron (chairman and CEO of Baron Capital) told CNBC on February 5, 2013:

“So people are saying … ‘[Dow] 14,000, is it too late?’ It’s not too late; 14,000, I’m thinking in 10 years, it’s going to be 30,000. In 20 years, it’s going to be 50,000 or 60,000.”

Rice Edelman (of Edelman Financial Services) reported a similar prediction by Jeffrey Hirsh that the Dow will reach 38,820 by 2025, saying:

“Hirsch is editor-in chief of Stock Trader’s Almanac, a well-known publication within Wall Street circles. In the latest edition of his almanac, Hirsch suggests that the Dow will experience a “super boom” starting in 2017 and ending with the Dow reaching 38,820 in 2025.

Now, I don’t know about any “super boom,” but the chances of the Dow reaching 38,820 by 2025 are actually pretty darn good. As of this writing, the Dow is above 11,000. For the Dow to reach 38,820 by 2025, it would have to return about 8.8% annually — and that’s quite ordinary.”

My Predicament

I retired in 2010 (yeah!). I moved my retirement savings from two company plans into an IRA. Unfortunately, to move them, I had to cash some the investments out in the 401K, leaving me with quite a few funds to get back into the market. In 2010 and 2011 I did get a lot of it re-invested, even though it was rising the whole time. We have set our asset allocation model to require 15% of our assets in international stocks. Since they were dirt cheap at the time, I had no emotional problem getting into some mutual funds focused on international stocks.

We also were over allocated in my last employers company stock, and the rising market made it easier for me to meet some selling price objectives.

However, getting that money and the rest of my retirement plan money into large cap dividend paying stocks (which also are called for in our allocation model) continues to be emotionally problematic for me. I keep thinking the market will go down and I can buy cheaper, but instead it just keeps going up and up! But, if the DOW is really going twice as high, I certainly want to be in on that!

Is The Bull Market About To Deflate?

According to USA Today article Why Does This Bull Market Get No Respect, in January 2013, Doug Sandler, chief equity officer at RiverFront Investment Group said:

“The other thing that has given investors pause, Sandler adds, is the fact that the market rally since 2009 has been driven in large part by policies and actions of lawmakers in Congress and central bankers, such as the Federal Reserve and European Central Bank. Some Wall Street bears argue that the gains have been artificially inflated by the stimulus injected into markets by bankers. These drastic and unprecedented measures used by central bankers to reignite the economy, revive risk taking and boost investor confidence are akin to “steroids” or “sugar high,” critics say.”

The article goes on to note:

“While some pundits warn that Main Street investors returning to stocks in year four of the bull is a sign of a market top, many other Wall Street pros say it is a bullish signal, as it shows that there is fresh money coming in from the sidelines. It also suggests that investor confidence is rising and they are willing to take more risk. If there ever was a big catalyst for the stock market, it would be individual investors returning to stocks and shifting the mountain of cash now on the sidelines or parked in bond funds and back into risk assets. If the long-awaited asset shift from bonds to stocks occurs, the move is likely in its early innings.”

Anthony Mirhaydari from MSN Money in an article Bull market or prelude to a bust? also from January feels confident that this bull is about over and that fundamentals look good for another ‘crash’. He says:

“…this looks like 2007 all over again, with a burst of exuberance just before it all comes crashing down.”

He points out that Europe hasn’t been fixed, that Germany is entering a recession and that the US consumer and businesses are not yet ready to go on a spending spree, indicating that the economy isn’t as strong as others might believe.

So, who do you believe? Will the bull market end? No one knows. I don’t – I’m not a professional, but even the professionals don’t know. I need to do what is right for my situation. My situation calls for getting re-invested in the market.

My Personal Lesson, Don’t Time The Market.

I’ve heard this mantra over and over again from every investment professional with whom I have dealt. Don’t time the market, figure out what your personal situation requires and work towards that.

It’s hard to do though.

In hindsight, although my personal situation made me desire retirement, it would have been financially more astute to keep working and investing my salary during 2010 and 2011 and 2012.

In hindsight, it would have been much better if my husband had gone ahead back in 2011 and bought those bonds we still need to get into our allocation.

In hindsight, we all would have sold out of the market at the end of 2006!

Hindsight is easy, but foresight is not. I have no way to predict the future. Therefore, what I am now trying to do, as I did back in 2010 and 2011, is to hedge my bet.

I have set up an automatic purchase plan to re-invest retirement funds once a week for a year into a large cap high dividend mutual fund. If the market continues to rise, at least I will get some of the shares at a lower price. If the market falls, I will get some of the shares at a lower price (assuming it falls during my investment period). Note that I am just reporting what I have done, not suggesting that this is what you should do.

Since I am not a trader or a fund manager, I think this is the best solution for me at this time. It may or may not turn out that way. That is the beauty of our inability to know the future! When we take action, we take risks.

What do you think the market will do in the next 10 years? What strategy are you using?


Comments

Should You Invest In A Rising Market? — 10 Comments

  1. To answer your question, I have no idea! I will be retired (again) in less than 5 years. I keep dollar cost averaging into the market. I will live on Social Security, pension, IRA, Roth IRA and brokerage accounts. I have a modest lifestyle with low debt, but will have my mortgage paid off by the time I retire. So my fixed income portion will support my lifestyle and the other part (equities) will support my wants.

  2. We all have th emotional need to want a better deal, but we can’t allow that to let us miss opportunities. Your best bet is always just to use technical analysis of the market as a whole, the industry your stock is in and the individual company you want to buy. If everything measures up and it is a good investments opportunity, then you go with it. That is the only way you can take the emotion out of it and remain profitable long term.

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