Don’t Time Market, Invest Steadily

With the New York Stock Exchange bouncing around 8000-9000, investors are getting weary and people are checking their 401k totals with  eyes barely open.  It really is a rough time for the economy and for anybody who has been semi invested in the stock market, a gain for the year usually isn’t the case.  For those that have the luxury of having extra cash available for trading, do not be scared to invest because you need to see these depressed prices as an opportunity to cash in on some oversold stocks.  Alcoa (AA) is at prices not seen since 1994.  Expedia (EXPE) is generally at an all time low since they IPO’ed in mid 2005.  And that trend is similar for many other companies regardless of industry or market capitalization.

Since no one has a crystal ball, make sure you invest in increments and do not sink all your money into the market at once.  The novice investor will get anxious and be worried about missing a big upturn by chasing after stocks.   For some people, it is psychologically easier to buy stocks when they’re going up instead of going down.  When the market does head lower (as we’ve seen in recent times) and you have no funds to trade with, then you really have handcuffed yourself.

My general rule:
Invest 25% (divided into as many companies as you like) of your money every time the NYSE drops 5%.  Therefore you know you’ll only spend all your money if the market drops a total of 20% at your first observation of the current market conditions.   This is a good way to hedge your investments so that you don’t try and “time the market.”  Timing the market is near impossible unless you can tell the future.  I can guarantee you’ll never invest all your money at the bottom of the market and sell all your investments at the market peak.  Therefore be conservative in your investments, do not let emotion sway your choices, and understand that when the market is dropping, it should be seen as an opportunity to buy stocks at prices that you were unable to purchase before.


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