When to re-enter?
NEW YORK – Lloyd Philip doesn’t trust this market and isn’t making any long-term bets because he sees Wall Street’s list of worries as simply too long.
Philip, a 33-year-old investor in Philadelphia, plans to jump in for the long haul when the Standard and Poor’s 500 index – the benchmark used by most professionals – has fallen 20 percent to 30 percent from its October highs. But while stocks remain volatile and have recently shown some very tentative signs of searching for a bottom, the question for those who fled the market becomes: When do I get back in?
“I just see that we’ve kind of cornered ourselves into an area where we have high deficits, high external debt, consumers are tapped out, real estate still needs to correct and interest rates are going down but the dollar is also going down. There are too many negative factors in the economy right now,” Philip said. “The reality is, no one knows whether this is the bottom or not.”
That’s just the point, some observers say. Finding a bottom often isn’t an easy process for Wall Street. Already in February there have been big gains and sizable pullbacks, making the situation confusing – when the market is rising, is it a pause before the next plunge? If it’s falling, is it the normal backing and filling found in a market recovery?
Investors who grew nervous about the stock market’s slide in recent months and called in a sell order might have regretted it after a strong advance at the start of the month. But a pullback or two later, those investors might have been feeling wise again. But ultimately, they have to get back in sometime, or they can risk missing out on short-term and long-term gains.
“Someone will tell you they got out at a great time but you’ve got to check back with those people to see whether they got back in at the right time,” said Manny Weintraub, president of Integre Advisors in New York.
Weintraub said investors who exited the market should consider a few things before moving back in. First, to dodge a tax hit, they should avoid buying the same investment they just sold at a loss within 30 days. Otherwise, they need to consider whether they had too much invested in stocks, he said.
Weintraub said investors who might have taken money out of the market quickly shouldn’t wait too long to put it back.
“I think getting in slowly is a good way to start investing but once you’ve had money that was already equity money for several years, I’d be more aggressive,” he said. Weintraub suggest putting half in at one time and half in periodically over a month or so.
Other advisers suggest investors ease back into markets with contributions at regular intervals; the most convenient way is to have them deducted from a paycheck or bank account. This lets investors sidestep the fear and greed that can color investment decisions made hastily.