being out of the market

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meyerr 05-10-2008, 6:18 AM | Post #2516374 | 6 Replies

We were discussing the distribution of an inheritance and one person stated that her financial advisor - her CPA, advised that she remain out of the market b/c things were too uncertain now and nobody knew what the market would do.

I'm not smart enough to time the market and I'm not faulting those who do it or trying to say they can't but I'm talking about average bunnies who put their money in and ride it out and don't necessarily even have the sense to rebalance regularly and those of us too indecisive to get in and out in a timely fashion.

Yesterday, I had a speculative stock pop 20%; it gave back 6% after hours. When I look at funds, I've got a few areas where I'm up 2-3% this month but flat or slightly negative ytd I know there are all these studies that show what happens if you miss the 10 worst days in the market and companion studies that show what happens if you miss the 10 best days in the market.

What would you do with a significant amount of new money and this market???

Roberta

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Re: being out of the market AKHalea 05-10-2008, 7:23 AM | Post #2516383

Good question, Roberta. Most investors face this at least once in their investing time horizon. While I don't think the conservative CPA's advice is necessarily good for most investors. Markets are always in a state of flux. There are some sorts of financial crises arising almost every month. Should that stop the bunnies from investing and should they keep bills under the mattress? I don't believe so. I believe that there are several approaches to handle this:

Buy into equities using DCA method. This way, the average investor ("bunny") can take baby steps and not get too concerned about market instability.
Buy only steadie eddie funds. How does one find steady eddies? Those funds that go down less in down markets and keep reasonably well (but slightly underperform) in up markets.
Follow ToniB's method of disciplined approach using well selected funds.

At the end of last year, I had such a situation myself when I was rolling over my 401K with a former employer. The monies had to come out of 401K as cash, not as "in-kind" because of the proprietary nature of the employer's funds. So this added 30% more cash was like a big weight on my shoulder. So, I waited a few months and have started DCA into a few steady eddy funds. It alleviates the burden of not doing anything and also doing too much at one time. I hope that helps ..... Anil

Related Topics funds market investing 401(k)horizon

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Re: being out of the market kerryvan 05-10-2008, 1:12 PM | Post #2516501

-1

Roberta,

I know you may not agree with me but I'd put some in TRAMX, EUROX or LETRX right now, Also, PRLAX

these are three different intl region funds that have performed well for the past 3 yrs, except tramx, it is a new fund with potential.

Related Topics funds

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Re: being out of the market uncleharley 05-10-2008, 2:11 PM | Post #2516511

"What would you do with a significant amount of new money and this market???"

I would do the same things that I am doing now. However I think you meant , "What should an inexperianced investor do with a windfall of money," or something to that effect.

Imho the first thing such a person should do is take a test to determine their risk tolerance. There are a couple of them available on the internet and I believe some brokerage firms offer such a test also. Once a persons risk tolerance has been established, they can work on goals and an asset allocation plan. Then they can begin to select the investments that are most likely to meet their needs and accomplish their goals. After all that, comes market timing. I don't want to minimize the importance of market timing, because it is important. But if the selection of investments is poor or there is no clear cut reason to even be investing, then market timing is not going to help very much. As for the CPA's advice, I would say that there is always a bull market in something and I would find a different advisor.

Related Topics bull market brokerage asset allocation market timing risk tolerance

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Bunnies and Wild Hares bythenbrs 05-10-2008, 3:20 PM | Post #2516532

Anil and UH,

Though still raw and inexperienced in TA and retirement planning, I can now say that I am a wiser, more knowledgable bunny than I was even 7 months ago. Do I qualify yet for wild hare status? How will I know when I have reached this important milestone?

Yours with much appreciation,

BytheNbrs

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Re: Bunnies and Wild Hares stephenl 05-11-2008, 3:11 PM | Post #2516824

I would have to make a few determinations before I did anything with that money and none of them would take into account present stock market or economy situations.

Is it for long term investment?

Is it needed soon and I can't afford to lose principal?

Will it be needed not soon but say in 5 years or so?

If I couldn't afford to see it lose principal and take a few years to make it back, I wouldn't put any at all into the market. Equities are not for short term investment.

If it were for a long term (until I die) investment and ultimately income production, I'd put 30% into bonds, 60% into stocks, and 10% into gold and real estate. I'd buy ETF's and Index funds...nothing with loads or high expense ratios. I'd put half my equities into the US and half overseas. I'd put half my bond fund allocation into domestic and half overseas.

The only short term I have is about 6 months wages in CD's and 6 months in a savings account.

I do no income making investments so to speak at all. I'll worry about income portfolios when I retire.

Related Topics principal expense ratio

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Re: Bunnies and Wild Hares Limoman 05-12-2008, 8:22 AM | Post #2516987

-1

Well? I have to tend to agree with your Investment Advisor...maybe..

seeing as? ( Historically that is, for past 6 yrs )

From May - Sept..the Equity Mutual Funds I have, do less than a 4% Diviation based upon the past 6 yrs.( Bonds are different animal )

and they do most of their gains in the 4th qtr..

and 2nd and 3rd qtrs? All but go flat ro Down

And with Tax Exempt MMkt about the same as taxable one's and can get 4.5% rate thru AARP on savings accounts?

And Following the addage of " Sell in May and Go away til Fall"..?

Might not be a bad idea to sit on the side lines and

Buy , Per Bob Brinker and others advocate. > Low 1300 S&P levels

and just just be All in btwn end of Aug / Sept..for a 4th qtr. finish rally.

Or Wait until Mid to late Oct.

Or Door # 2> Compromise and split the difference and go 50% Now and 50% later..

Or Door #3> DCA over the next 3-4 mos..

And Only during the 2nd week on Tuesdays btwn 11:15 am - 12:18 pm time (EST ) when msot borkers get their bets in for the Rest of the day, before going out for Lunch.

Of course, have to ck out how the Funds your looking at to Invest in and Past may not tell the future, but It just might improve your odds..( or not ).

Then there are funds Like CGMFX and CGMRX that defy common widsom that play the Short side too..not to mention his Top 5 stocks ( + 31% YTD ).. and he's just loaded up on some Latin stocks..( PRLAX or it's top 5 stocks might be a Play? )

Go figure

it's only Money

and will it make any difference in 5 yrs?